Cybersecurity in Mergers & Acquisitions: How to Secure Data During Transitions

Merging Businesses, Merging Risks

Mergers and acquisitions (M&A) are high-stakes endeavors that join not only companies, but also their digital assets and vulnerabilities. In the rush to close a deal, executives often focus on financials, contracts, and cultural integration, while cybersecurity can be an afterthought. However, overlooking data security during an M&A transition can be a costly mistake. Unfortunately, this scenario is far from hypothetical: major deals in recent years have been jeopardized or devalued due to unseen cyber risks. Protecting sensitive data during transitions is now a critical concern for human resource (HR) professionals, business owners, and enterprise leaders guiding these deals.

Cybersecurity issues can directly impact deal value and success. For example, Verizon famously reduced its purchase price for Yahoo by $350 million when it learned of Yahoo’s massive data breaches mid-deal, and Marriott discovered that Starwood’s reservation database had been compromised for years prior to acquisition. Such cases highlight how a target’s security lapses can become the acquirer’s problem overnight. This article explores why cybersecurity is essential in M&A transactions and outlines how organizations can secure data throughout the transition process.

A successful merger or acquisition is about more than financial synergy, it’s also about risk management. Cybersecurity has emerged as one of the highest-stake risk factors in modern deal-making. A study by Deloitte revealed that 53% of organizations encountered a critical cybersecurity issue after announcing an M&A deal, and over 60% would factor a company’s cybersecurity posture into their decision to move forward. In other words, a majority of acquirers now realize that inadequate security can significantly undermine a deal’s value or even derail it entirely.

Acquiring a company means inheriting its data and security liabilities. If the target firm has undisclosed data breaches, weak security practices, or unpatched vulnerabilities, these issues become the acquiring company’s problem from day one. Cyber incidents can translate into immediate financial losses, regulatory fines, and reputational damage. For instance, Yahoo’s acquisition price was slashed by $350 million when its past data breaches came to light, and Marriott was fined roughly £99 million under GDPR after inheriting Starwood’s long-undetected breach. These examples underscore that cybersecurity negligence can carry multi-million dollar consequences and legal liabilities for both buyer and seller.

Beyond headline-making cases, everyday M&A transactions also face elevated cyber threats. Attackers view merger negotiations and integrations as prime opportunities. During these periods, companies are often in flux, sharing confidential data and connecting IT systems, which can create openings for exploitation. A breach at such a sensitive moment can leak business secrets, violate privacy laws, or even scuttle the deal.

When two organizations combine, so do their attack surfaces. Several cyber risks tend to spike during the transition period of an M&A:

• Dormant Breaches and Hidden Threats: The target company may harbor undetected cybersecurity issues such as malware infections or past breaches that were never disclosed. These hidden problems are ticking time bombs that the acquirer could inherit and only discover after the merger, potentially leading to a post-deal crisis.
  
• Integration Vulnerabilities: Merging IT environments is a complex task that can inadvertently introduce security gaps. Incompatible systems, rushed cloud migrations, or connecting previously isolated networks may weaken normal defenses, giving attackers an opportunity. Cybercriminals know IT teams are stretched thin during integration and often attempt phishing or ransomware attacks when employees are distracted.
  
• Data Leakage in Transit: During due diligence and integration, vast amounts of sensitive data (financial records, intellectual property, customer or employee information) are exchanged. Without strict controls, confidential data can leak via unsecured channels or human error. For example, an employee might send a file to the wrong address or fall for a spoofed email. Secure data transfer protocols and careful access management are vital to prevent leaks.
  
• Insider Risks and Cultural Gaps: M&A transitions can create stress and confusion for staff. A distracted or disgruntled insider might exploit the chaos, and differing security cultures between the two companies can lead to policy lapses if not managed. Without clear guidance, employees may ignore or mishandle security procedures. Insider risk is high during organizational upheaval.
  
• Third-Party and Supply Chain Exposures: An acquisition also means inheriting the target’s third-party vendors and partners. If any of those have weak security practices, they could become a backdoor into the combined company via a supply chain attack. All external connections and vendor contracts should be reviewed for potential cyber risk during the M&A process.
  

Just as financial due diligence is standard practice in M&A, cybersecurity due diligence has become essential. Before finalizing any acquisition, the acquirer should perform a thorough assessment of the target’s security posture. In fact, failing to do so can leave the acquirer with unpleasant surprises that might have been deal-breakers if known earlier.

Effective cybersecurity due diligence involves several key steps:

1. Review Security Policies & Controls: Examine the target’s cybersecurity program, including its policies, governance structure, and adherence to standards or regulations. This inside-out review reveals how well the company defends its data (e.g. use of firewalls, encryption, access controls, incident response plans, etc.).
   
2. Perform Technical Risk Assessment: Conduct technical testing and analysis to uncover vulnerabilities. If possible, run vulnerability scans or penetration tests on the target’s systems. These efforts help identify unpatched software, misconfigurations, or other weaknesses that could be exploited.
   
3. Review Past Incidents: Investigate the target’s breach history and incident response record. Request disclosure of any known security incidents or regulatory violations. If previous breaches occurred, note how they were handled and whether any issues remain unresolved, as these could translate into ongoing liabilities.
   
4. Evaluate Security Culture: Interview key IT/security staff and gauge the overall security culture. Determine whether leadership truly prioritizes cybersecurity and whether employees are trained in security awareness. A target with poor cyber hygiene or a lax security culture may pose greater risks during integration.
   

The overarching goal is no surprises: both parties should enter the merger fully aware of any cyber skeletons in the closet.

Closing the deal is just the beginning, the post-merger integration phase is when two companies’ systems and data actually come together, and it’s a moment of peak vulnerability. To secure data during this transition, companies need a well-planned approach that balances speed with caution.

Key strategies to protect sensitive information during M&A integration include:

• Use Secure Data Rooms and Channels: Share confidential documents only through encrypted, access-controlled data rooms or secure file transfer systems. Strictly limit access to deal data and require strong authentication (e.g. multi-factor login) for anyone accessing sensitive files.
  
• Integrate Networks Carefully: Do not immediately connect the two companies’ IT networks without safeguards. Keep systems separate or gradually merge them in stages after thorough security checks. If one network harbors malware or other threats, quarantining it before full integration is critical.
  
• Encrypt and Monitor Data Transfers: Use strong encryption for any data migrations. Implement monitoring (such as data loss prevention tools and detailed logging) to detect unauthorized copying or unusual data access during the transition. Watch for anyone downloading unusually large files, which could signal a breach or insider threat.
  
• Increase Security Vigilance: Treat the transition period as a time of heightened risk. Keep security teams on high alert to respond to intrusions or suspicious behavior. Conduct extra vulnerability scans and intensify log monitoring during the merger, since attackers may try to strike when defenses are in flux. Educate employees to be especially cautious with emails and to report anything suspicious immediately.
  
• Retain Cybersecurity Expertise: Involve cybersecurity personnel directly in planning and executing the integration. Avoid cutting key IT/security staff during the merger, their institutional knowledge of systems and risks is invaluable. If needed, supplement the team with external security experts to ensure the merged environment gets the attention it needs.
  

In practice, this might slow down some integration tasks, but it is a worthwhile trade-off to avoid a devastating breach that could compromise the entire investment.

In the modern regulatory environment, the marriage of two companies also means merging their compliance obligations. Data protection and privacy laws worldwide impose strict duties on organizations to safeguard personal information, duties that do not pause for an M&A event. Business owners and HR leaders must be aware of how regulations like the European Union’s GDPR or California’s CCPA will apply when transferring customer or employee data as part of a deal.

A key legal risk is that the acquiring company can be held liable for security failures of the company it buys. Regulators have made it clear that “we didn’t know” is not a defense. In the Marriott-Starwood case, for example, UK authorities concluded that Marriott failed to perform sufficient cybersecurity due diligence when it bought Starwood and “should also have done more to secure its systems”. As a result, regulators moved to fine Marriott for a breach that originated on Starwood’s watch. This precedent shows that an acquired data breach can become the legal responsibility of the acquirer, complete with hefty fines and fallout.

Cross-border M&A deals raise additional complexities. If a transaction involves EU personal data, GDPR requirements on data transfer and breach notification must be met. Sector-specific laws may also come into play (for instance, HIPAA in healthcare or PCI-DSS for payment data), requiring careful handling of certain data sets during integration. All of this underscores that cyber risks are not just IT issues but governance and compliance issues.

Companies should involve legal counsel and compliance officers early in the M&A process to navigate these obligations. Some key legal protections include:

• Align data protection compliance: Update data privacy agreements and policies as needed, ensure any required consents (for customers, employees, etc.) are obtained for transferring personal data, and clarify who will handle breach notifications if a security incident is discovered during or after the transition.
  
• Use contractual safeguards: Include cybersecurity-related representations, warranties, or indemnities in the merger agreement to allocate risk. These provisions provide legal recourse if the seller misrepresented its security posture or if a major undisclosed incident emerges post-acquisition.
  

Cybersecurity in M&A is a shared responsibility that spans executives, IT teams, HR departments, and legal advisors. To foster a secure transition, enterprise leaders should integrate security into every phase of the merger. Below are some best practices for making M&A transitions cyber-resilient:

• Start Planning Early: Make cybersecurity a priority from the earliest stages of the deal, and address obvious security gaps as soon as they are identified. Include your Chief Information Security Officer (CISO) or IT security managers in M&A planning discussions. Early input helps spot red flags and allows time to address issues or budget for security improvements.
  
• Conduct a Joint Risk Workshop: Soon after a deal is announced (or even during due diligence), assemble stakeholders from both companies to map out cyber risks and defenses. Identify critical assets and systems that will require protection, and agree on interim security measures. This collaborative planning ensures both sides have a shared understanding of the security game plan.
  
• Communicate with All Employees: Mergers bring change and uncertainty, so clear communication about security expectations is essential. Both companies’ employees should be reminded of policies for handling data and warned about likely scams (for example, phishing emails that reference the merger). HR can help by including cybersecurity in integration training and making sure everyone knows how to report suspicious incidents.
  
• Monitor and Audit Post-Merger: Once the companies become one, perform a thorough security audit of the merged environment. Verify that no new gaps were introduced and that all systems adhere to the expected security standards. Continue to monitor networks and systems closely in the months after integration, since attackers might test the waters of the newly merged company. Use the lessons learned to improve your incident response and business continuity plans.
  

In today’s digital business world, a merger or acquisition is not just a financial transaction, it’s also a technical integration of systems and data that must be protected. Enterprise leaders and HR professionals who champion cybersecurity during M&A are ultimately safeguarding the future of the combined organization. By making data security a core part of the merger process, companies send a powerful message that they value their business and stakeholders. In the end, a merger should make a company stronger, and that strength must include robust cyber defenses.

FAQ

What are the main cybersecurity risks during mergers and acquisitions?

M&A transitions expose organizations to risks such as hidden breaches, IT integration vulnerabilities, insider threats, and supply chain weaknesses. Attackers often exploit these periods of change to infiltrate systems or steal data.

Why is cybersecurity due diligence important in M&A?

Cybersecurity due diligence helps uncover hidden vulnerabilities and ensures the acquirer understands the target company’s security posture. Without it, the acquirer may inherit undisclosed breaches or compliance failures that can lead to financial and reputational damage.

How do legal and regulatory obligations affect M&A cybersecurity?

Global data protection laws like GDPR and CCPA impose strict requirements for safeguarding personal data. In M&A, the acquiring company may be held liable for past breaches, as seen in the Marriott-Starwood case, making compliance a critical part of the process.

What strategies can protect sensitive data during M&A transitions?

Organizations should use secure data rooms, encrypt transfers, carefully integrate IT systems, and monitor networks closely. Employee awareness and clear communication are also essential to reduce risks during the transition.

Can cybersecurity issues impact the financial value of a deal?

Yes. Poor cybersecurity can reduce deal value or lead to renegotiation. For example, Verizon reduced its offer for Yahoo by $350 million after discovering large-scale data breaches during the acquisition process.