The increasing frequency of security breaches during M&A transactions is a growing concern for investors. When a breach occurs mid-deal, it introduces additional risks, complicates due diligence, and raises serious questions about the target company’s resilience, security posture, and management effectiveness.
However, it also presents an opportunity to assess how well the leadership team handles crises and whether the business is structurally sound enough to withstand such an event.
For investors, a mid-deal breach means intensifying scrutiny and taking decisive action to protect their interests. Here’s what should be done to navigate the situation effectively:
1. Give It Time for – Resolution & Operational Remedies.
A breach response involves multiple external bodies, such as the ICO, forensic teams, and regulators. Rushing the assessment process can lead to incomplete analysis and overlooked risks. Allow time for:
- The full forensic investigation to conclude.
- The ICO and regulatory responses to be managed.
- Security patches and process improvements to be implemented.
- Verification that new security measures are effective.
2. Understanding the Breach
The severity, cause, and response to the breach are paramount. Key questions include:
- What was the nature of the attack? (e.g., ransomware, insider threat, phishing, supply chain vulnerability)
- What data was compromised?
- How was the breach detected, and how long was the system exposed?
- What steps were taken immediately after discovery?
- Has the organisation complied with regulatory obligations, such as reporting to the ICO?
The answers to these questions will guide further due diligence and risk assessment.
3. Ramping Up the Technical Due Diligence
A security breach necessitates a deeper technical and operational review, including:
- Forensic Examination – Engaging cybersecurity specialists to determine how the breach occurred, what vulnerabilities were exploited, and the extent of the damage.
- Security Architecture Review – Assessing the overall system security, including perimeter protection, segmentation, and access control.
- Penetration Testing – Expanding the scope of pen testing to ensure weaknesses are identified and addressed comprehensively.
- Process and Policy Review – Evaluating security governance, roles and responsibilities, risk management, compliance with standards (e.g., ISO 27001, NIST), and frequency of audits.
4. The Investment Committee Will Need Convincing
Investors and the Investment Committee will require clear and verifiable proof regarding the breach’s impact and the company’s ability to recover. This includes:
- A dedicated cybersecurity report – Providing forensic details of the breach, lessons learned, and remediation plans.
- A revised risk assessment – Showing a full evaluation of residual risks post-breach and whether they can be mitigated effectively.
- Commitment to security improvements – Demonstrating steps taken by the target company to strengthen its defences, such as investing in new security controls, enhancing employee training, or adopting new compliance standards.
5. Interpretation Matters – Avoid Meaningless Assessments
Cybersecurity can be highly technical, and misinterpretations can lead to misleading conclusions. Engaging specialists to act as interpreters for the investment team ensures that:
- The right questions are asked and answered.
- The penetration test scope is meaningful and correctly aligned with the actual risks.
- The investment team understands the significance of findings and their impact on the deal.
6. Specialist Help is Essential
Managing a mid-deal breach is not a job for generalists. It requires:
- Dedicated cybersecurity experts – To assess, investigate, and remediate the breach.
- Legal and compliance specialists – To handle regulatory obligations and protect investor interests.
- Technical advisors – To verify the effectiveness of security enhancements.
A Security Breach Could Improve Investor Confidence in The Management Team
A security breach mid-deal is a serious event, but it doesn’t necessarily mean the deal should collapse. Instead, it should serve as an ultimate test of the target company’s resilience and ability to respond to crises. A well-managed response could even strengthen investor confidence.
However, it requires thorough due diligence, clear reporting, and sufficient time to ensure risks are properly understood and mitigated before proceeding with the investment.
