Integrating cybersecurity into M&A strategy: Key risk assessment elements for due diligence success

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Executive Summary

The role of cybersecurity in mergers and acquisitions (M&A) has evolved from a peripheral consideration to a critical factor in deal valuation and success. With cyberattacks becoming increasingly sophisticated and regulatory scrutiny intensifying, organizations face significant risks that can undermine the financial, operational, and reputational outcomes of M&A transactions. This whitepaper outlines the essential cybersecurity risk assessment elements that should be included in M&A due diligence checklists, providing actionable insights for Certified Information Systems Auditors (CISAs) and security professionals.

Recent data shows the average cost of a data breach reached $4.88 million in 2024, representing a 10% increase from the previous year. Organizations now face approximately 1,600 cyberattacks weekly, with 80% of global dealmakers reporting data security issues in at least one-fourth of M&A targets. These statistics underscore the critical importance of comprehensive cybersecurity due diligence before finalizing any acquisition.

This whitepaper presents seven key elements of cybersecurity risk assessment that should be integrated into M&A due diligence: (1) cybersecurity program assessment, (2) data privacy and protection, (3) product and service security, (4) access management, (5) threat detection and protection, (6) third-party risk management, and (7) post-merger integration planning. By addressing these elements, organizations can identify potential vulnerabilities, assess compliance with regulatory requirements, and develop strategies to mitigate risks throughout the M&A lifecycle.

1. Introduction

In the fast-evolving digital landscape of 2025, cybersecurity has emerged as a pivotal factor in mergers and acquisitions. The integration of digital technologies into virtually every aspect of business operations means that acquiring a company inherently involves assuming its cybersecurity posture, vulnerabilities, and potentially undetected breaches. The consequences of overlooking these factors can be severe, leading to regulatory penalties, litigation, reputational damage, and significant financial losses.

The Growing Importance of Cybersecurity in M&A

Several factors have contributed to the increased significance of cybersecurity in M&A transactions:

Escalating Cyber Threats: The frequency and sophistication of cyberattacks have risen dramatically, with organizations facing approximately 1,600 cyberattacks weekly. These threats range from ransomware and data breaches to supply chain compromises and insider threats, all of which can severely impact a company's value and operations.

Regulatory Scrutiny: The regulatory landscape for cybersecurity and data privacy continues to evolve, with new privacy laws in states like Montana, Texas, Oregon, and Florida complementing established frameworks such as the GDPR. Non-compliance can result in substantial fines and legal liabilities that may transfer to the acquiring company.

Third-Party Vulnerabilities: With an average of 182 vendors per organization, third-party risks have become a significant concern. Research indicates that 58% of breaches are linked to vendor-related vulnerabilities, highlighting the importance of assessing a target's vendor ecosystem.

Financial and Reputational Risks: Cybersecurity incidents can lead to direct financial losses, operational disruptions, and long-term reputational damage. For acquiring companies, these risks can undermine the expected returns on investment and strategic objectives of the acquisition.

Recent M&A Cybersecurity Incidents

Several high-profile cases have demonstrated the impact of cybersecurity issues on M&A transactions:

In the Verizon-Yahoo acquisition (2017), Yahoo's disclosure of multiple data breaches affecting billions of accounts led to a $350 million reduction in the purchase price and significant post-acquisition challenges for Verizon.

Similarly, the Marriott-Starwood merger revealed a pre-existing breach that affected approximately 383 million guest records, resulting in regulatory fines, litigation, and reputational damage. These cases highlight the need for thorough cybersecurity due diligence before finalizing any acquisition.

The Role of CISAs in M&A Due Diligence

Certified Information Systems Auditors (CISAs) play a critical role in ensuring thorough cybersecurity assessments during M&A activities. With their expertise in information systems auditing, control, and security, CISAs are uniquely positioned to:

1. Evaluate the target company's cybersecurity controls and governance structures

2. Assess compliance with regulatory requirements and industry standards

3. Identify potential vulnerabilities and security gaps

4. Quantify cybersecurity risks and their potential impact on deal valuation

5. Develop strategies for post-merger security integration

This whitepaper provides CISAs with a comprehensive framework for conducting cybersecurity risk assessments during M&A due diligence, focusing on seven key elements that should be included in assessment checklists.

2. Key Elements of Cybersecurity Risk Assessment

2.1 Cybersecurity Program Assessment

A robust cybersecurity program forms the foundation of an organization's security posture. Evaluating this program during due diligence provides insights into the target's approach to security governance, risk management, and compliance.

2.1.1 Policies and Governance

Key Assessment Areas:

• Presence and maturity of formalized cybersecurity policies, standards, and procedures

• Alignment with industry frameworks (e.g., NIST Cybersecurity Framework, ISO 27001)

• Clear definition of security roles and responsibilities

• Presence of a Chief Information Security Officer (CISO) or equivalent role

• Evidence of executive and board-level involvement in cybersecurity oversight

• Process for regular policy reviews and updates

Assessment Methods:

• Review documentation of cybersecurity policies and governance structures

• Interview key security personnel to understand governance practices

• Evaluate reporting structures and lines of communication for security issues

• Assess the level of executive sponsorship and support for security initiatives

Red Flags:

• Absence of formal security policies or significant gaps in policy coverage

• Lack of clear security leadership or responsibility assignment

• Minimal executive or board involvement in security matters

• Outdated policies that do not reflect current threats or regulatory requirements

2.1.2 Risk Management

Key Assessment Areas:

• Formal risk assessment methodologies and processes

• Regular risk assessments and documentation of findings

• Risk treatment plans and implementation status

• Integration of cybersecurity risks into enterprise risk management

• Risk acceptance processes and criteria

Assessment Methods:

• Review risk assessment reports and methodologies

• Evaluate risk treatment plans and remediation tracking

• Assess the frequency and scope of risk assessments

• Interview risk management personnel to understand processes and challenges

Red Flags:

• Ad hoc or informal approach to risk management

• Outdated or incomplete risk assessments

• Limited scope of risk assessments (e.g., focus on technical risks while ignoring operational or third-party risks)

• High number of accepted risks without appropriate mitigation

2.1.3 Security Awareness and Training

Key Assessment Areas:

• Formal security awareness program for all employees

• Specialized training for employees in high-risk roles

• Regular phishing simulations and testing

• Metrics for measuring training effectiveness

• Integration of security awareness into onboarding and continuous education

Assessment Methods:

• Review training materials and schedules

• Evaluate training completion rates and knowledge assessment results

• Assess the relevance and coverage of training content

• Interview employees to gauge security awareness levels

Red Flags:

• Absence of formal security awareness training

• Low completion rates or poor performance in knowledge assessments

• Lack of specialized training for high-risk roles

• Outdated training content that does not address current threats

2.1.4 Audits and Compliance

Key Assessment Areas:

• History of internal and external security audits

• Compliance with relevant regulatory requirements (e.g., GDPR, HIPAA, PCI DSS)

• Security certifications (e.g., ISO 27001, SOC 2)

• Process for tracking and addressing audit findings

• Evidence of continuous improvement based on audit results

Assessment Methods:

• Review audit reports and compliance certifications

• Evaluate remediation plans for identified issues

• Assess the scope and frequency of audits

• Interview audit and compliance personnel to understand challenges and successes

Red Flags:

• Absence of regular security audits

• Pattern of recurring audit findings without effective remediation

• Significant gaps in regulatory compliance

• Expired or limited-scope certifications

2.2 Data Privacy and Protection

In an era of stringent data protection regulations and increasing consumer privacy concerns, assessing a target's data privacy practices is crucial for identifying potential liabilities and compliance issues.

2.2.1 Regulatory Compliance

Key Assessment Areas:

• Compliance with applicable data privacy regulations (e.g., GDPR, CCPA/CPRA, HIPAA)

• Privacy impact assessments and data protection impact assessments

• Data subject rights management processes

• Privacy notices and consent mechanisms

• International data transfer mechanisms

• History of privacy-related complaints or investigations

Assessment Methods:

• Review privacy policies and notices

• Evaluate data subject rights fulfillment processes

• Assess data transfer agreements and mechanisms

• Interview privacy officers and legal personnel

• Review any regulatory correspondence related to privacy

Red Flags:

• Significant gaps in privacy compliance documentation

• Lack of processes for managing data subject requests

• Non-compliant data transfer mechanisms

• History of privacy complaints or regulatory actions

• Absence of privacy impact assessments for high-risk processing

2.2.2 Data Governance

Key Assessment Areas:

• Data classification and handling policies

• Data mapping and inventory processes

• Data retention and disposal policies

• Data minimization practices

• Process for identifying and protecting sensitive data

• Data loss prevention controls

Assessment Methods:

• Review data classification policies and inventories

• Evaluate data retention schedules and disposal practices

• Assess processes for identifying and protecting sensitive data

• Interview data governance personnel to understand practices and challenges

Red Flags:

• Absence of data classification or inventory processes

• Unclear data ownership or stewardship

• Excessive retention of personal data

• Lack of controls for protecting sensitive information

• No regular reviews or updates to data inventories

2.2.3 Privacy by Design

Key Assessment Areas:

• Integration of privacy considerations into product and service development

• Privacy review processes for new initiatives

• Privacy-enhancing technologies implementation

• Default privacy settings for products and services

• User control over personal data

Assessment Methods:

• Review privacy by design documentation and processes

• Evaluate privacy review records for recent projects

• Assess the use of privacy-enhancing technologies

• Interview product development teams about privacy integration

Red Flags:

• Absence of privacy considerations in development processes

• No formal privacy review for new initiatives

• Default settings that maximize data collection

• Limited user control over personal information

2.3 Product and Service Security

For technology-driven companies, the security of products and services is a critical consideration during M&A due diligence. Vulnerabilities in these offerings can lead to breaches, regulatory issues, and reputational damage.

2.3.1 Secure Development Practices

Key Assessment Areas:

• Secure development lifecycle (SDLC) methodology

• Security requirements definition and validation

• Secure coding standards and guidelines

• Code review and security testing processes

• Vulnerability management for product components

• Security training for developers

Assessment Methods:

• Review SDLC documentation and practices

• Evaluate secure coding standards and adherence

• Assess security testing methodologies and coverage

• Interview development teams about security integration

• Review source code scan results (if permitted)

Red Flags:

• Absence of formal secure development processes

• Limited security testing or reliance on manual testing only

• Lack of developer security training

• History of security vulnerabilities in released products

• Inadequate management of open-source components

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