Cyber security: The overlooked risk in M&A

The rush to close deals and integrate operations can result in weakened defences, making organisations prime targets for cyber-attacks. This evolving risk now extends beyond operational concerns and into areas of financial and reputational damage, as regulatory bodies demand stricter cyber security due diligence. 

A time of increased vulnerability 

M&A activities create perfect conditions for cyber vulnerabilities to flourish. They require either the integration or separation of complex IT systems, which can expand an organisation’s attack surface.  

Merging two companies' systems usually means overcoming differences in security standards, outdated technologies, or incompatible platforms – all of which can leave gaps that attackers are quick to exploit. Furthermore, the process of migrating sensitive data across different platforms poses its own risks, increasing the chance of data breaches or exposure. 

Even today, when organisations are so heavily reliant on digital systems, the M&A due diligence focus still tends to be on financials and operations, allowing critical security measures and audits to be either overlooked or rushed. The hurry to meet deal deadlines can result in incomplete or omitted comprehensive risk assessments, leaving blind spots in cyber security readiness. 

Overburdened IT teams and resource constraints 

Another key factor that heightens the risk during these transactions is the strain on IT departments. During M&A or other transitional periods, IT teams are typically stretched thin, as they concentrate on the technical and logistical tasks required to merge systems or separate entities. This workload leaves little room for proactive security measures, making it difficult to spot potential threats or address known vulnerabilities. 

This lack of attention to cyber security can turn even the most routine tasks into dangerous undertakings, as attackers seize the opportunity to exploit understaffed and overburdened IT functions. 

On top of everything, security functions already operating on ‘good will’ are as vulnerable as any other team or department to feelings of job insecurity and a resulting lack of motivation and productivity during an M&A. And that can increase the risk of an insider threat. 

The two faces of insider threats 

Disgruntled employees 

One of the most significant and underestimated risks during M&A comes from insider threats, particularly those presented by disgruntled employees. In any organisation, periods of change are characterised by uncertainty, job insecurity, and internal politics.  

People facing the prospect of layoffs, role changes, or power shifts may become frustrated or feel betrayed by their employer. This can lead to malicious behaviour, including data theft, sabotage, or deliberate security breaches. 

Many employees, particularly those in IT or other sensitive roles, have access to critical systems and confidential data. In a rush to transition or integrate systems, companies may not manage access controls effectively, increasing the risk of insider exploitation. Disgruntled employees with privileged access can cause serious harm, particularly if their actions are driven by job insecurity or dissatisfaction with the restructuring process. 

The heightened internal politics during these periods are another factor. Power struggles, competition between merging entities, or changes in leadership can create adversarial environments where people feel threatened or sidelined. This tension can result in acts of sabotage, either to gain an upper hand or to damage the company’s prospects. 

Stressed employees 

An M&A is usually a stressful undertaking. Emotions run high as people work longer hours than usual to make the deal happen, and fatigue soon sets in. As a result, some people may make mistakes or lapses in judgment that are out of character – for example, clicking on a link in a clearly suspicious email, or handing out sensitive information without registering either its importance, or whether the person asking for it should be given access. 

Stressed and disgruntled employees alike are more vulnerable to external manipulation. Threat actors may exploit their emotions through social engineering (e.g. phishing attempts), or by offering financial or other incentives in exchange for inside information. The combination of internal dissatisfaction and external manipulation creates a potent mix that can severely compromise an organisation’s security. 

Sensitive data 

M&A activities clearly put critical financial and intellectual property data at risk. During these transactions, substantial amounts of confidential information are transferred between parties, including financial reports, strategic plans, and customer data.  

This information is highly valuable to threat actors, who target it for corporate espionage or financial gain. People involved in the deal, such as legal teams, executives, and consultants, could be the focus of phishing attacks or other social engineering schemes. 

Additionally, legacy systems or weak data management practices may leave this sensitive information vulnerable. The rapid pace of transactions often means that proper data governance practices are not fully implemented, making sensitive data an easy target. 

Third-party supplier risk 

Another overlooked area during M&A is the increased risk posed by third-party suppliers. Companies in transition can rely heavily on external vendors for IT integration, data migration, or other support services. These third-party vendors may not have the same cyber security standards as the company, and so introduce vulnerabilities into the system. 

A single compromised vendor can expose sensitive data or provide an entry point for threat actors. The integration of third-party systems without sufficient security vetting can lead to cascading risks that affect the entire organisation. Furthermore, during restructuring or bankruptcy, organisations may be forced to switch vendors or negotiate new contracts, further increasing the likelihood of security gaps in the supply chain. 

Post-transaction risks and regulatory pressure 

Cyber risks do not vanish once the deal is completed. During post-transaction integration, vulnerabilities can persist as newly merged entities struggle to align their security protocols. Differences in the cyber security maturity of two organisations may leave one side exposed. Additionally, systems may not be fully integrated for months, if not longer, creating ongoing security gaps. 

The regulatory landscape is also evolving rapidly, and the failure to secure data during these transitions can lead to significant penalties. Regulations such as GDPR impose strict requirements on data protection, and failure to comply can result in severe financial and reputational consequences. The increasing regulatory scrutiny places further pressure on organisations to prioritise cyber security during M&A and restructuring, or risk facing legal and financial repercussions. 

Managing cyber risk in M&A 

Given these many risks, robust cyber vigilance is essential throughout M&A activities. Organisations must take proactive steps to manage cyber risk and protect their data and systems. This includes: 

• Implementing strict access controls to ensure that only those who need access to sensitive systems or data have it. 
• Monitoring employee activity closely, particularly employees with privileged access, to detect any unusual behaviour that could show malicious intent. 
• Conducting regular cyber security audits before, during, and after the transaction to identify vulnerabilities and address them at once. 
• Ensuring thorough off-boarding procedures are in place for employees leaving the company, ensuring their access to sensitive systems is fully revoked. 
• Assessing third-party vendors for cyber security compliance and closely watching the integration of third-party systems. 
• Maintaining transparency with employees throughout the process, offering support where necessary to reduce fear, uncertainty, and dissatisfaction. 

Your trusted partner 

The cyber risks associated with M&A activities are too significant to ignore. The complexity of merging systems, the pressure on IT teams, the threat posed by insiders, and the risk introduced by third-party vendors all create an environment ripe for cyber-attacks.  

By recognising these risks and taking steps to mitigate them, organisations can ensure that their transition processes are secure, and their valuable assets are protected. Cyber vigilance is no longer an optional aspect of these transactions—it is a necessity. 

Thomas Murray is a trusted advisor and partner throughout the M&A or restructuring process, providing the expertise and resources necessary to manage cyber security risks effectively.  

Our services help to: 

• Minimise disruptions and downtime caused by cyber-attacks. 
• Protect sensitive data and intellectual property. 
• Prevent financial losses and reputational damage. 
• Ensure compliance with data protection regulations. 
• Foster a culture of cyber security awareness within the merged entity. 

Contact us to find out more about protecting your organisation’s assets and ensuring a smooth transition.