BY RYAN TULLY
September 30, 2024
In mergers and acquisitions (M&A), cybersecurity due diligence is critical to avoid costly surprises after the deal is closed. However, many organizations still rely on static documents that fail to provide real-time insight into how well sensitive data is protected.
To prevent serious financial and legal risks, M&A teams need to adopt a more dynamic approach to evaluating cybersecurity risks.
Traditional Due Diligence Checklists: The Problem with Static Documents
Typical M&A checklists focus on gathering documents such as:
- Past risk assessments
- Incident reports of data breaches
- Contracts with third parties hosting sensitive data
- Cybersecurity policies and procedures
While these documents provide useful historical context, they don’t reflect the current state of data protection. For example, Dropbox disclosed a data breach affecting its e-signature service, Dropbox Sign. Some suggest this is a familiar case when a company inherits security vulnerabilities from another organization when they begin to merge.
What’s missing? A real-time view of how sensitive data is currently being protected.
Introducing a Modern Cybersecurity Due Diligence Checklist
To fully understand the risks involved in an M&A deal, organizations must go beyond static documents and adopt a more dynamic approach, including the following:
1. Create a Data Inventory
A data inventory, or Records of Processing Activities (ROPA), is a living document that captures real-time information about how personal and confidential data is processed and stored.
This inventory should cover:
- All software applications processing personal or sensitive data
- Data location, use, and protection status (in transit, in use, at rest)
- Third-party processors and their data handling procedures
2. Identify and Protect Data-at-Rest
Sensitive data-at-rest, which includes personally identifiable information (PII) and business-critical data, is particularly vulnerable to breaches.
Spirion’s Sensitive Data Platform(SDP) Spirion’s helps by:
- Detecting and classifying sensitive data wherever it resides (on-premise or in the cloud)
- Providing automated remediation to address data protection risks in real time
Example: The 2023 MOVEit file transfer breach highlighted how unprotected data-at-rest can be exploited, resulting in massive legal liabilities for affected organizations.
3. Assess Compliance with Data Protection Regulations
Regulations like GDPR and the California Privacy Rights Act (CPRA) require organizations to have strict data protection measures in place.
Ensure that:
- Data inventories are kept up to date to meet regulatory requirements (such as GDPR’s Article 30 on ROPA)
- Sensitive data is discovered, classified, and secured in compliance with applicable laws
4. Conduct Real-Time Data Risk Assessments
Static reviews of past risk assessments won’t provide the insight needed to evaluate ongoing data protection practices.
Spirion’s Data Risk Assessment (DRA) offers real-time discovery and classification of sensitive data, helping M&A teams:
- Detect vulnerabilities in sensitive data environments
- Mitigate risks with automatic remediation, reducing the likelihood of post-acquisition data breaches
Example: In 2020, Marriott was fined $124M under GDPR for failing to protect personal data after acquiring Starwood, demonstrating the importance of understanding current data risks.
5. Evaluate Third-Party Data Processing Practices
Review the data protection measures of third parties who manage or store sensitive data.
Make sure they:
- Follow stringent security protocols to safeguard data
- Comply with relevant data privacy regulations
6. Interview Key Data Protection Officers
Ensure that those responsible for maintaining the data inventory are included in M&A interviews.
These individuals can provide insight into:
- The current state of data protection
- Ongoing challenges or unresolved issues with sensitive data security
Secure Your M&A Process with Spirion
M&A deals involve substantial risks, particularly when it comes to cybersecurity. Traditional due diligence methods that rely on static documents fail to capture the full picture of an organization’s cybersecurity posture. To safeguard against hidden liabilities, integrating Spirion SDP solution into the due diligence process offers dynamic, real-time visibility into sensitive data protection.
Schedule a customized Data Risk Assessment with Spirion to learn how our data protection solutions can help you secure your next M&A deal.
