Are your investments cyber-secure?
Are your investments cyber-secure?
Cyber security safeguards critical infrastructure, data integrity, and economic stability, while also protecting sensitive business and customer information. As our reliance on digital systems grows, a strong cyber security position for organisations is essential to mitigate threats and drive innovation.
For private equity (PE) firms, cyber security is not just a protective measure when assessing potential portfolio companies, but a critical component of business strategy, safeguarding assets, maintaining trust, and ensuring regulatory compliance.
Identifying risks pre-deal through cyber security due diligence
PE firms should evaluate cyber risks pre-deal to determine the potential impact of the target company’s cyber security preparedness, or lack thereof (including any data breaches or litigation facing the target company), upon the final deal price. Pre-deal activities to undertake include:
- Reviewing the target company’s cyber security position, including cyber security plans, policies, processes, and technology effectiveness
- Pinpointing red flags such as past data breaches, regulatory concerns, supply chain security, vulnerability management, incident response plans, and cyber insurance coverage
- Conducting vulnerability assessments, penetration tests, and external attack surface management, including scans of the deep web, dark web, and open-source intelligence to uncover potential breach points.
Ensuring portfolio companies have strong cyber security practices reduces the risk of supply chain attacks and data breaches, and is an important part of pre-deal due diligence and risk management.
Maintaining your portfolio company’s cyber security posture
Cyber-attacks can disrupt operations, leading to financial losses and operational downtime.
Robust cyber security practices and compliance to standards ensure that businesses can operate with minimal disruptions. And, where large sums of money are transferred electronically, adequate cyber security measures ensure that transactions are conducted safely, guarding against fraud and financial loss.
It’s important for PE firms to regularly assess the cyber security capabilities of their portfolio companies against industry best practices and key regulatory requirements, while also actively seeking and identifying any potential gaps or vulnerabilities through offensive security protocols.
Other activities to undertake at this point include:
- Establishing processes, deploying security tools, educating staff, and providing cyber resources to help companies reduce their cyber security risk
- Preparing plans to respond, and recover from disruptions and crisis situations
- Enhancing digital trust and handling customer data in accordance with applicable regulatory requirements.
Exit preparation and maximising your return
A cyber breach can severely damage a firm's reputation and erode client trust. In a world where data is increasingly viewed as an organisation’s most valuable asset, cyber security is inextricably linked to company value - and yet data can also be its greatest source of risk.
As such, a comprehensive cyber security assessment is key to safeguarding the business's value and reputation, assisting in a profitable exit.
In preparation for exit, PE firms should:
- Undertake cyber security maturity assessments against applicable standards and industry best practice
- Review the cyber security position, including cyber security team capability, plans, policies, processes, and technology effectiveness
- Seek to uplift and enhance cyber security capabilities.
How BDO can help
Cyber security services are integral to every stage of the private equity lifecycle, from acquisition to ownership and eventual sale of a portfolio company. By prioritising cyber security, private equity firms not only protect their investments but also drive sustainable growth and secure returns in an increasingly digital world.
Whether you’re buying, selling or growing a business, our national private equity experts provide a holistic support at every stage of the process. Reach out today to learn how we can help.