Cybersecurity and Data Privacy Due Diligence
Value creation through risk vigilance
Our Cybersecurity Due Diligence approach is tailored for private equity clients making investments in highly regulated and technology-driven industries. With an increased number of cybersecurity incidents, scrutiny from regulators on cybersecurity compliance, and customers’ sensitivity to data privacy, cybersecurity risks could result in a major economic impact if not assessed and managed prudently. Performing dark web searches, scanning the Company’s infrastructure, and reviewing inadequate data handling or potential breaches would give a remediation plan and strategic contingencies for minimizing surprises from a transaction.
Buy-side cyber due diligence
With an increasing number of cybersecurity threats and stringent regulations enforcing maximum penalties for not protecting consumer data, investors are not closing a deal without a thorough buy-side cyber due diligence. Whether making a strategic purchase, acquiring a platform, or undertaking a carve-out, cyber due diligence provides visibility into the Company’s compliance with regulatory and industry requirements (i.e., GDPR, CCPA, PCI-DSS, etc.) and ability to protect its data assets (i.e. intellectual property, customer data) from external, internal and third-party threat actors.
Our Cybersecurity due diligence reveals regulatory liabilities and an indication of a data breach that could impact the viability of the target’s business by regulatory penalties and reputational damage. We advise our clients on managing cybersecurity risks with appropriate pre-deal cyber insurance, reps & warranty insurance, and assigning appropriate responsibilities to a seller.
Sell-side cyber due diligence
74% of acquires would not buy a company or will only buy at a steep discount, a recent NYSE study of the board of directors of the public company revealed. This is an eye-opening finding for the executive team trying to fetch maximum valuation for their company either in a direct sale or carve-out. If cybersecurity and data privacy issues are addressed months before the roadshow, it would minimize deal distractors and increase the Company’s attractiveness to potential buyers.
Cybersecurity and data privacy due diligence for sellers entails identifying systemic gaps or vulnerabilities that may concern the pontential buyers and could raised as a red flags in the buyer’s due diligence process. The advanced preparation on addressing these gaps gives the sellers lead time to manage identified issues and implement appropriate governance and risk control programs prior to sale.
Meruksha’s proven approach
Meruksha has developed a Cyber due diligence methodology with experience executing hundreds of deals in mid-market. We tailor our approach based on the different deals that require different levels of due diligence based on unique deal situations.
Having a clear understanding of a target’s cybersecurity landscape is an essential step to mitigating the loss of value caused by vulnerable applications, infrastructure, and people. Our three-step approach ensures appropriate insights are used to arrive at sound risk assessments and recommendations, so the value of your investment is protected.
Risk Profiling
We initiate the due diligence process by performing a high-level risk profile of the underlying business. We identify the critical risks to the business based on the regulatory requirements and frequently observed incidents in the industry. This is an essential step for developing an initial view of critical cyber risks that need to be managed to minimize financial losses from unexpected security incidents.
Threat Hunting
Based on the outcome of the initial risk profiling, if deemed necessary, we perform dark web searches and scan the company’s network and applications to uncover any potential indicator of breaches. A dark web search provides us visibility into whether the company’s data assets are already compromised or whether there is a significant vulnerability in the environment that an external threat actor already exploited. The threat hunting analysis with risk profiling gives you a complete view of the Company’s risk posture to also sure the appropriate repes & warranty insurance and/or to convince the seller to escrow appropriate funds to remediate cyber risks.
Remediation Planning
If the Cyber risks are manageable with additional investments, we develop a high-level risk management strategy and post-close road map with the recommendation of tools and service providers to address the risks. The roadmap will also contain the one-time and recurring spend that can be used to adjust the valuation models of the deal.
Our advantage
Meruksha’s cybersecurity professionals have Big4 consulting and private equity experience with a formal MBA degree to advise clients on cybersecurity issues from the perspective of the M&A transactions. Our approach is not to assess every company from the best of class cybersecurity control expectations, but to provide pragmatic advice for the clients to turn cybersecurity risks into profitable opportunities. Nishi Shah has over 20 years of experience in instituting risk governance, leading business transformation programs, implementing various security tools, and managing IT operations.
