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Building Cybersecurity Due Diligence into Your PE Deals

Building Cybersecurity Due Diligence into Your PE Deals

In today’s changing digital landscape, cybersecurity has become a pivotal aspect of due diligence in private equity (PE) transactions. With the growing threat of cyberattacks, integrating robust cybersecurity assessments into the due diligence process has become a necessity for safeguarding investments and ensuring the long-term viability of businesses. 

Private equity firms have increasingly recognized the criticality of cybersecurity due diligence in their deal-making processes. By recognizing and understanding the potential risks associated with a weak cybersecurity framework in target companies, PE investors are now more vigilant about incorporating thorough cybersecurity evaluations of a company.

The financial, reputational, and operational damage that results from cyber incidents is staggering. According to a report from Accenture, the average ransom paid for

mid-sized companies under attack was over $1 million. From data breaches to ransomware attacks, cybersecurity incidents can not only affect a company’s financial standing but also significantly affect consumer trust and overall brand value.

Key Components of Cybersecurity Due Diligence

A comprehensive cybersecurity due diligence process involves implementing a multifaceted approach. It covers various elements, including but not limited to:

  • Cyber Risk Assessment: Analyzing the target company’s current cybersecurity infrastructure, identifying potential vulnerabilities, and evaluating the effectiveness of its existing security protocols. Assessments can proactively uncover evidence of previous breach activity increasing overall investment risk and identifying liabilities that may otherwise go unnoticed.
  • Regulatory Compliance Check: Ensuring the target company complies with relevant data protection laws and industry-specific regulations, such as HIPAA, SOX, SOC 2, PCI DSS or other industry-specific cybersecurity standards.
  • Incident Response Planning: Reviewing the company’s incident response plans and assessing its readiness to mitigate and manage cyber threats.

Integration into the Due Diligence Process

Integrating cybersecurity due diligence into the broader due diligence process is crucial for PE firms to safeguard their data and continue to focus on the financial side of their business. It necessitates collaboration between deal teams, cybersecurity experts, and a firm’s legal counsel.

Incorporating cybersecurity risk assessments at the early stages of deal evaluation also allows investors to make informed decisions. Understanding a company’s cybersecurity risks can influence the valuation, and also aid in formulating post-investment strategies to fortify the target company’s security infrastructure.

Thrive’s tailored managed IT services for PE firms cover all aspects of technical strategy and regulatory compliance. By leveraging our industry insights and robust support, Thrive empowers financial companies to navigate the ever-evolving IT landscape with confidence. 

PE firms that embed robust cybersecurity assessments within their due diligence processes are better equipped to navigate the complex cyber threats that businesses face today. Thrive’s team can help you protect your business by uncovering IT vulnerabilities and delivering unmatched insight into the potential risks present in your mission-critical business infrastructure.

Contact Thrive today to learn more about how we can help integrate a robust cybersecurity posture into your PE deals and beyond.