Why you absolutely must pay attention to IT security in an M&A deal

When companies take over other companies, it is not only the financial figures that are scrutinised. The state of IT security is also playing an increasingly important role in M&A deals. Find out here what you need to pay particular attention to and what the consequences of any deficiencies could be.

How do M&A and IT security go together?

Mergers and acquisitions (M&A) are strategic processes in which two companies merge or one company buys another. These transactions are often aimed at increasing market share, acquiring new technologies or expanding geographically.
In a digitalised world, IT security is playing an important role – and that includes M&A transactions!

Because: Companies need resilient IT infrastructures to protect business data, customer data and confidential information. Successful cyber attacks jeopardise the success of a company and thus also M&A transactions.

For this reason, the status of IT security in an M&A process is usually examined as early as the due diligence phase – i.e. during the initial company audit. This phase is crucial, as potential buyers examine all aspects of the target company in order to identify risks.

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Florian Bröder, Managing Director of FB Pro, comments:
“A company that has very good figures today from a business perspective and is therefore an interesting object to buy may be worth nothing tomorrow due to a cyber attack. In addition, further risks may arise for the buyer. That’s why a well-founded assessment of the technical and organizational IT security measures is part of every M&A deal”.

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IT security problems in an M&A process: What can the consequences be?

If inadequate security measures, data leaks or compliance violations are found during an IT audit, the consequences include the following:

Before the M&A deal
If IT security problems are discovered during the due diligence phase, this may lead to renegotiations, price reductions or even the termination of the deal. The buyer(s) could therefore reduce the purchase price or demand additional guarantees and obligations in order to minimize the risks.

During the M&A deal
IT systems with security gaps and vulnerabilities make it difficult to integrate them into other system landscapes. This leads to delays and high costs. In addition, security incidents can occur that are very costly.

After the M&A deal
Undetected security problems can cause long-term damage. This includes financial losses due to security incidents, legal consequences due to compliance violations and reputational damage that affects the trust of customers, partners and investors.

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A simple practical tip

Would you like to know how well an IT system is “hardened”? Create transparent reports quickly and automatically to measure the status of the applied system configuration – this is possible with our free AuditTAP.

Audit TAP screenshot (Image: FB Pro GmbH)

Therefore: Request an audit TAP report from various reference systems as part of an M&A deal and evaluate it. Anything below 40% compliance with standardised frameworks should be checked more closely!

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M&A: Who is liable for IT security deficiencies?

Liability for IT security problems affects both the management of the selling company and the new owners:

    • What is unfortunately often forgotten is that IT security should always be a matter for the management! Directors are personally liable if they neglect their duty of care (see also NIS2). If security incidents occur after the sale that can be attributed to inadequate security measures or a lack of IT security, legal consequences and often contractually agreed penalties/fines will follow.
    • The new owners will have to invest considerable sums to close security gaps and fulfil compliance requirements. They will be liable for financial losses and legal sanctions if security problems are not recognised and remedied in good time.

How can IT security problems be eliminated?

As is so often the case, proactive action is better than delayed reaction. This is why you should protect your “data treasures” in the best possible way and in accordance with current regulations in all phases of an M&A process, which can take many months or even years.

For example, they should be based on the requirements of ISO 27001 and must also comply with industry standards such as BAIT/VAIT/KAIT/ZAIT, DORA or TISAX!

Before the M&A deal

    • Attack detection systems are mandatory. And a regular IT security audit also helps to identify and eliminate vulnerabilities in the IT infrastructure.
    • Work with IT security experts to identify potential risks and implement effective security measures.
    • Secure your systems preventively, for example with System Hardening, and ensure professional attack detection.

During the M&A deal

    • Implement systems for continuous monitoring of the IT security situation now at the latest in order to detect and respond to threats at an early stage.
      Continuously optimize your measures to improve information security. For example, install updates as quickly as possible and implement the requirements of new regulations.
    • Plan a proper IT budget. After all, information security, data protection and compliance must continue to be guaranteed even after the takeover or merger.

After the M&A deal

    • Conduct regular security reviews to ensure IT systems are compliant with current threats and regulatory requirements.
    • Regular awareness training and education for all existing and new employees to ensure they are aware of current security threats and cyber security practices.
    • Keep working hard on the topic of IT security – at all levels!

Conclusion

IT security plays a central role in M&A deals and can have a significant impact on the success of a transaction. As a director looking to sell your business, you need to ensure that your IT infrastructure is robust and secure. A thorough security audit, the involvement of experts and the implementation of modern security protocols are eminently important to minimize potential risks.

Early and continuous review of IT security not only protects sensitive data, but also builds buyer confidence and ensures a smooth transition.

Would you like to know how well your IT systems are “hardened” and therefore meet the current compliance requirements? Then do a check with AuditTAP! You can download and use the tool free of charge.

Do you want to protect your systems sustainably? Please contact us and we will support you in implementing automated System Hardening.

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