Dark Reading is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them.Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Risk

6/7/2017
01:30 PM
Connect Directly
Twitter
RSS
E-Mail
50%
50%

Cybersecurity Stands as Big Sticking Point in Software M&A

The breach that was the fly in the ointment of the Yahoo-Verizon deal is one of many now surfacing as security of acquired firms starts to become a point of negotiation.

The mergers and acquisitions (M&A) market for software broke a lot of records last year, as investors took advantage of the convergence of cheap money and of society's growing dependence on software in every facet of personal and business life. But as the feeding frenzy continues, there's one big sticking point that rears its head more frequently than any other deal blocker in the software M&A game: cybersecurity.

A new study out today by West Monroe Partners and Mergermarket shows that cybersecurity issues frequently make problems both during due diligence and after the close of software M&A. The study found that cybersecurity was the number two reason why software deals were abandoned, only behind compliance, which in itself is usually wrapped up with existing security concerns.  

Meantime, more than half of respondents to the survey say that they discovered a cybersecurity problem after a deal closed, indicating that there's still lots of room for improvement in how well acquisition targets are scrutinized for security problems before stakeholders sign on the bottom line.

"It's a messy problem right now and the more competition in the marketplace the bigger that problem gets," says Sean Curran, senior director in West Monroe's security and infrastructure practice.

Curran explains that because the power of the marketplace is frequently with sellers who are often courted by a number of firms, they're much less likely to provide the necessary access to information and resources to conduct cybersecurity due diligence.

It's likely why the 16% of survey respondents say they were displeased with past experiences conducting cybersecurity due-diligence, compared to just 1% each for other forms of due diligence such as technology or operations. 

Nevertheless, the frequency of cybersecurity due diligence is on an upward trajectory. At Curran's firm, about 65% of the transactions they consult on each year now include some security due diligence - compared to zero just three years ago.

Technology attorney Randy Sabett agrees that security diligence is being brought up in greater frequency across not only many different types of M&A deals but also other types of formalized business agreements.

"We are seeing on an increasing basis situations where the acquirer says 'Hey, this is a big issue to me. I really want you to dig in on it,'" says Sabett, who is special counsel for Cooley LLP in Washington D.C. "In other cases, it's one of those things where the acquiring entity might say 'Yeah, it’s an issue, but just make sure that they have done the things that they should have done.' Not necessarily quite check the box, but not a deep dive. Somewhere in between." 

Both Curran and Sabett agree that one of the biggest impediments to a smooth transaction is the discovery of an ongoing or recently uncovered breach. Last year's announcement of a massive data breach at Yahoo that came right in the middle of the firm's buy-out by Verizon is a poster child for this. The previously undisclosed breach ended up leading to Verizon knocking a massive $350M off of its purchase price of Yahoo.

According to the survey released today, over 35% of respondents reported cybersecurity or compliance issues as the number one issue that led them to walk away from a deal. Sabett says that even if these two issues don't directly lead to an acquirer wanting to walk away, they can cause a cascading effect of consequences that can put a deal in jeopardy.

"They're the types of things that can crater the deal process - not necessarily the deal itself but they may significantly increase the time to close or maybe even change the deal terms in one form or another," he says. 

According to Curran, beyond that, some other significant findings in diligence that can impact a deal include the unprotected storage of data, hoarding of very sensitive data, and the complexity of fixing issues to meet the acquirer's risk tolerance levels. Take the case of software firms: if vulnerabilities exist within the fabric of the company's core architecture, that could be a big problem. 

"It really comes down to risk tolerance and why you're planning on buying the organization," he says. "If I have to redevelop the software from scratch to remove those weaknesses, then is it really worth me buying the product that I ultimately have to reguild anyway? Or am I better off finding a competitor?"

Related Content:

Ericka Chickowski specializes in coverage of information technology and business innovation. She has focused on information security for the better part of a decade and regularly writes about the security industry as a contributor to Dark Reading.  View Full Bio
 

Recommended Reading:

Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
News
Inside the Ransomware Campaigns Targeting Exchange Servers
Kelly Sheridan, Staff Editor, Dark Reading,  4/2/2021
Commentary
Beyond MITRE ATT&CK: The Case for a New Cyber Kill Chain
Rik Turner, Principal Analyst, Infrastructure Solutions, Omdia,  3/30/2021
Register for Dark Reading Newsletters
White Papers
Video
Cartoon
Current Issue
2021 Top Enterprise IT Trends
We've identified the key trends that are poised to impact the IT landscape in 2021. Find out why they're important and how they will affect you today!
Flash Poll
How Enterprises are Developing Secure Applications
How Enterprises are Developing Secure Applications
Recent breaches of third-party apps are driving many organizations to think harder about the security of their off-the-shelf software as they continue to move left in secure software development practices.
Twitter Feed
Dark Reading - Bug Report
Bug Report
Enterprise Vulnerabilities
From DHS/US-CERT's National Vulnerability Database
CVE-2021-30481
PUBLISHED: 2021-04-10
Valve Steam through 2021-04-10, when a Source engine game is installed, allows remote authenticated users to execute arbitrary code because of a buffer overflow that occurs for a Steam invite after one click.
CVE-2021-20020
PUBLISHED: 2021-04-10
A command execution vulnerability in SonicWall GMS 9.3 allows a remote unauthenticated attacker to locally escalate privilege to root.
CVE-2021-30480
PUBLISHED: 2021-04-09
Zoom Chat through 2021-04-09 on Windows and macOS allows certain remote authenticated attackers to execute arbitrary code without user interaction. An attacker must be within the same organization, or an external party who has been accepted as a contact. NOTE: this is specific to the Zoom Chat softw...
CVE-2021-21194
PUBLISHED: 2021-04-09
Use after free in screen sharing in Google Chrome prior to 89.0.4389.114 allowed a remote attacker to potentially exploit heap corruption via a crafted HTML page.
CVE-2021-21195
PUBLISHED: 2021-04-09
Use after free in V8 in Google Chrome prior to 89.0.4389.114 allowed a remote attacker to potentially exploit heap corruption via a crafted HTML page.