Cyber security: hidden risk in M&A deals

October 2025  |  FEATURE | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

October 2025 Issue

M&A transactions are complex undertakings involving significant financial, legal and operational considerations. From the buy side, due diligence processes must be comprehensive, encompassing a range of critical factors – including, increasingly, cyber security.

Historically, cyber security may have ranked lower in the hierarchy of due diligence priorities. However, in today’s digital landscape, companies cannot afford to overlook cyber security as they rush to complete transactions. The interconnected nature of modern business ecosystems means that a single vulnerability can cascade across multiple platforms, amplifying the impact of a breach and complicating recovery efforts.

One of the most pressing challenges in modern M&A processes is the risk of inheriting cyber vulnerabilities. Acquiring a company means gaining access not only to new products, services or market share, but also to its cyber security posture – including any outdated systems, insufficient security practices or latent vulnerabilities. These inherited weaknesses can undermine the transaction and expose the acquirer to significant risk. In some cases, vulnerabilities may be deeply embedded in legacy systems or operational workflows, making them difficult to detect without specialist expertise.

Although it is difficult to quantify precisely how many deals fail due to cyber security issues, such risks can derail transactions. Cyber breaches and attacks during due diligence or integration phases can result in increased costs, reputational damage and, in some cases, complete deal failure. The reputational fallout alone can be devastating, eroding stakeholder trust and diminishing brand value in ways that are difficult to reverse.

Inherited vulnerabilities in the digital landscape

Among the many cyber security risks associated with M&A transactions, data breaches are perhaps the most damaging – both financially and reputationally. A breach can lead to identity theft, financial fraud, regulatory penalties and long term reputational harm. According to IBM’s 2024 Cost of a Data Breach Report, the global average cost of a data breach reached $4.88m.

However, data breaches are not the only concern. Third-party risks are increasingly significant. Many companies rely on networks of vendors, suppliers and cloud-based service providers, which can present multiple attack vectors. If these third parties lack robust cyber security controls, they may introduce vulnerabilities that attackers can exploit to infiltrate systems, steal data or launch ransomware attacks. The complexity of these third-party relationships often obscures the true extent of exposure, making it essential for acquirers to map and assess the entire digital supply chain.

Legacy system vulnerabilities are another concern. Acquired companies may operate outdated software, use weak encryption or rely on unsupported infrastructure, all of which can provide easier entry points for malicious actors. Other risks include undetected malware, advanced persistent threats, intellectual property theft, regulatory violations and insider threats. The latter are particularly dangerous, as they may bypass conventional defences and can be difficult to detect. Insider threats may stem from disgruntled employees, negligent behaviour or even unintentional errors, all of which can have serious consequences if not properly managed.

Acquiring a company with inadequate cyber security safeguards can expose buyers to legal liabilities and reputational damage. This is especially critical in the current regulatory climate, where authorities are increasingly vigilant and impose stringent requirements that can result in substantial fines and sanctions for non-compliance. Regulators across jurisdictions are tightening enforcement, and companies must now demonstrate not only compliance but also proactive risk management.

Building digital defences into M&A success

Pre-acquisition due diligence is paramount. Cyber security due diligence should be a central component of the overall process. This includes a thorough assessment of the target company’s cyber security posture – evaluating existing measures, identifying vulnerabilities and assessing the risks they pose to the acquirer. Engaging external cyber security consultants can provide an objective perspective and uncover hidden risks that internal teams might overlook.

Due diligence should also cover regulatory compliance and incident response capabilities. A broader scope enables acquirers to make informed decisions about the feasibility of the acquisition and the strategies required to mitigate risk. Understanding how a target company has responded to past incidents can offer valuable insights into its resilience and preparedness.

Post-acquisition, attention must shift to integrating the acquired company’s IT and security infrastructure. A structured integration strategy is essential, with cyber security as a top priority. A phased approach – beginning with critical systems and gradually incorporating less essential ones – can help minimise the risk of introducing vulnerabilities into the acquirer’s ecosystem. This methodical approach also allows for continuous monitoring and adjustment, ensuring that integration does not compromise operational stability.

During integration, acquirers should deploy cyber security tools that provide visibility across both networks. These tools enhance threat detection and mitigation, safeguarding the integrity of the combined infrastructure. Real-time analytics and automated threat intelligence can significantly improve response times and reduce the likelihood of successful attacks.

The chief information security officer (CISO) plays a pivotal role. Early involvement in the deal process allows the CISO to guide due diligence, evaluate cyber risks and develop proactive mitigation strategies. This ensures that cyber security considerations are embedded into the M&A strategy from the outset. The CISO’s strategic input can also help align cyber security goals with broader business objectives, fostering a culture of security across the newly formed organisation.

Staying ahead of the cyber curve

As M&A activity continues to accelerate, cyber security will become increasingly vital. Companies that prioritise cyber security from the beginning will be better positioned to protect their assets, maintain their reputations and achieve long-term success. Proactivity is essential. In an era where digital threats evolve rapidly, reactive measures are no longer sufficient. Forward-thinking organisations must embed cyber resilience into every stage of the M&A lifecycle, from initial scoping to post-deal integration.

© Financier Worldwide

BY

Richard Summerfield