Cybersecurity in Mergers & Acquisitions: The Overlooked Risk That Could Derail Your Deal
In the world of business growth, mergers and acquisitions (M&A) are powerful levers. They allow UK small and medium-sized businesses (SMBs) to:
- Expand market reach
- Acquire valuable intellectual property
- Strengthen operational capabilities
- Gain competitive advantage
But in the rush to assess financials, contracts, and staffing, a critical factor is frequently overlooked, cybersecurity.
Whether you’re acquiring another company or preparing to be acquired, failing to properly assess and manage cybersecurity risk can:
- Scupper the deal entirely
- Introduce significant hidden liabilities
- Leave your business exposed to breaches and penalties post-acquisition
In this post, we’ll explore various aspects of cybersecurity in mergers & acquisitions, including:
- Why cybersecurity must be part of every M&A process
- The risks hidden beneath the surface of acquisition targets
- Real-world examples of deals derailed by cyber issues
- How UK SMBs can perform lightweight but effective cyber due diligence
- How fractional security leadership can support you through the process
The Business Risk: M&A Without Cyber Due Diligence
Traditionally, M&A due diligence focuses on:
- Financial performance
- Legal obligations
- Employment liabilities
- Contractual agreements
- Intellectual property
But in today’s threat landscape, cybersecurity risk is business risk.
According to Forescout’s “Cybersecurity in M&A” study (2022), 62% of deals are delayed due to cybersecurity issues, and 53% of buyers discovered unknown cybersecurity problems after closing.
Even more concerning:
- 78% of buyers said they would walk away from a deal if undisclosed breaches were found.
- 65% of target companies had no documented incident response plan in place.
In the UK, under the Data Protection Act 2018 and UK GDPR, a purchaser inherits responsibility for how data is handled, even if security gaps occurred before the acquisition.
Case Study: When M&A Cyber Risk Goes Wrong
Yahoo & Verizon (2017)
In one of the most famous examples, Yahoo’s $4.8 billion acquisition by Verizon was nearly abandoned after two historic breaches affecting 3 billion accounts came to light during due diligence.
Verizon ultimately went through with the deal, but only after negotiating a $350 million price reduction and taking on extensive legal and reputational risk.
Had these issues surfaced post-acquisition, Verizon may have been liable for far more.
Why This Matters for UK SMBs
While billion-pound deals make headlines, the lessons are even more critical for small businesses.
Here’s why:
- SMBs are often less mature in cybersecurity: Basic controls may be missing, such as patch management, MFA, or access governance.
- Buyers may inherit legacy risks: Including unsupported systems, insecure integrations, or past data mishandling.
- SMBs are increasingly targets of cybercriminals: Especially those in sectors like finance, health, professional services, or tech.
- Without the proper monitoring and detection controls in place, there’s no telling what could already be on the technical estate or who may have access. Companies considering an acquisition or merger may want to do so without compromising their own estate in the process.
In short: without proper cyber due diligence, you might acquire a breach waiting to happen.
What Cybersecurity Issues Could Be Lurking?
A target company might appear strong on paper, but behind the scenes, these issues could be quietly introducing major risk:
Past Breaches
Unreported or unresolved data breaches can lead to regulatory fines and customer trust loss post-deal.
Unsecured Legacy Systems
Old, unsupported operating systems still in use with no patching plan, products may be propped up on a plethora of unsupported open source packages that cannot be easily removed, forgotten remote access systems may be gathering dust in a corner.
Poor Identity & Access Management
Dormant accounts for ex-staff, shared logins on admin or service accounts, no MFA, all common in companies of all sizes.
No Network Segmentation
Flat networks mean lateral movement is easy for an attacker. That risk is inherited on Day 1.
No Asset Register or SaaS Inventory
The buyer can’t protect or integrate what they don’t know exists.
No Security Policies or Processes
If there’s no incident response plan, no data classification policy, or no offboarding process, you’ve got a governance vacuum.
Unvetted Third-Party Integrations
Are APIs and suppliers securely managed? Or are there open ports and untracked data flows?
The Cost of Inaction
Let’s be clear: security problems in an M&A scenario can have real-world consequences:
- Regulatory fines and class action lawsuits
- Integration delays or failures
- Remediation costs post-deal (new tools, consultants, retraining)
- Loss of customer trust or contract terminations
- Business valuation drop or renegotiated terms
In some cases, cybersecurity issues don’t just reduce value, they kill deals outright.
How to Approach Cyber Due Diligence as an SMB
You don’t need a £50K big four audit. Even a lightweight, structured approach can surface major red flags and guide smarter decisions.
Phase 1: Pre-Deal Security Discovery
Start by asking:
- Do they have documented cybersecurity policies and procedures?
- When was their last penetration test or vulnerability scan and what were the results? How did they remediate the findings?
- What systems and SaaS tools do they use?
- Are all users required to use MFA?
- Have they experienced any cyber incidents in the past 3 years? More importantly, are they appropriately equipped to know if they have?
You can gather this via:
- A cyber due diligence questionnaire (we can provide one)
- Technical interviews with their IT lead
- Reviewing policy documents and logs
Tip: Engage a fractional security expert to support interpretation. This avoids delays and confusion.
Phase 2: Risk Assessment
Once data is gathered, perform a risk-level assessment across key areas:
| Area | Risk Indicator | Risk Level |
| User Access | No MFA, stale accounts | High |
| Infrastructure | Unpatched legacy systems | Medium |
| Policies | No incident response plan | Medium |
| Data Handling | Personal data stored in unsecured cloud drives | High |
| Supply Chain | Unknown third-party tools | Medium |
Phase 3: Decide & Act
Use your findings to:
- Adjust the valuation
- Request remediation before completion
- Re-negotiate deal terms
- Walk away if risk is unacceptable
Or (on the other side of the fence)
- Proactively produce evidence portfolio to streamline deals
- Use demonstrable security posture to drive greater valuations
- Attract a greater number of potential purchasers due to the ‘business benefits’ absorbing and organisation such as yourselves could bring
How Clear Path Security Can Help with Cybersecurity in Mergers & Acquisitions
At Clear Path Security, we offer fractional security leadership tailored to the M&A lifecycle.
Whether you’re buying or preparing to sell, we can:
- Perform cyber due diligence assessments
- Identify hidden risks that impact deal value
- Provide security maturity scoring and reporting
- Guide remediation or uplift planning
- Help acquired entities align to your security baseline
- Support with compliance uplift (Cyber Essentials, ISO 27001, UK GDPR, etc.)
Our low-cost, subscription-style service gives you access to enterprise-grade security expertise without the high cost of a full-time hire or big consultancy.
What If You’re the Business Being Acquired?
Cyber risk isn’t just a problem for buyers.
If you’re a UK SMB planning to be acquired, here’s what you should do before the due diligence phase begins:
- Clean up access controls and retire unused accounts
- Build a simple asset register of all systems and data
- Ensure all critical systems are patched and secure
- Document your security policies (we can help)
- Schedule a penetration test or vulnerability scan
- Obtain Cyber Essentials certification, or similar technical verification by independent third party
Final Thoughts on Cybersecurity in Mergers & Acquisitions
Cybersecurity is no longer a technical side issue, it’s a core part of business resilience, value, and continuity.
In a merger or acquisition, you’re not just buying a company, you’re inheriting their risks, vulnerabilities, and reputation.
By embedding cybersecurity into your due diligence process, you protect not just the deal, but your future business.
Find more of our useful security due diligence guidance here.
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