Mergers and Acquisitions (M&A) typically require integrating IT infrastructures. Although it is often an afterthought, information security should be a critical concern for those crafting strategies before and after a merger or an acquisition.
Dispersed assets, varied team processes and weak governance heighten risk, leading to potential data leaks, regulatory fines, and cyberattacks – all impacting the acquiring company after the M&A. This reduces the Return on Investment (ROI) for the acquiring company if financial and reputational risks materialize.
As companies adopt emerging technologies, their attack surfaces grow, requiring robust Security Posture Management (SPM). Conducting thorough security assessments before a merger is essential. Cyber Security Mesh Architecture (CSMA) and identity-first security offer scalable, flexible defenses for complex environments. Consolidating vendors and improving security configurations are key to reducing risk as well, covering third-party risk management, which is a critical section of enterprise risk management. These concerns are especially relevant in sectors like healthcare, finance, tech, and retail, where breaches are common.
Information Security Needs at Different M&A Stages
Organizations pursue mergers and acquisitions for various reasons, such as financial growth, horizontal or vertical integration, acquiring advanced technology, or enhancing supply chain capabilities. These goals influence how information security is managed. The M&A process begins with identifying a suitable target, followed by the integration of infrastructure, applications, and data—granting the acquiring organization access to the target’s assets. To ensure effective risk management, regulatory compliance and consistent security enforcement, information security and governance must be centralized under one authority following the merger, enabling cohesive control across the combined environment.
Pre-Merger Considerations
The extent to which the IT infrastructures of the acquiring and target organizations are aligned should be evaluated. Some important considerations include compatibility between the acquiring and target organizations’ infrastructures—both on-premises and cloud-based— which must be evaluated to identify potential interoperability and integration issues. The acquiring organization should assess whether its IT team has the necessary skills to manage the target’s existing infrastructure and technologies. Additionally, the target organization may have software-as-a-service (SaaS) partnerships that will transfer to the acquiring entity; thus, third-party risk assessments are essential to evaluate the security and reliability of these vendors. It is also important to review assurance reports such as SOC 2 Type II, penetration tests, stress tests and ISO certifications to name some. These reports help assess the target organization’s security posture and practices such as cyber drills, business continuity plan (BCP) exercises and restoration procedures. (Authors note: We advise readers to verify that their areas of interest are fully covered within the “certification scope” section of the assurance reports).
Furthermore, the target company must be scrutinized for any ongoing investigations by regulatory bodies concerning data breaches or cyberattacks, obligations toward regulators and customers, and any active lawsuits involving information security or cybersecurity. If such issues are identified, the acquiring organization must take steps to indemnify itself to mitigate the risk of financial loss or reputational harm.
Post-Merger Considerations
All enterprises owned and managed by the acquiring organization should have a well-defined roadmap and should be aligned to a single security policy. Efforts should be made to align the controls implemented in the target organization with the requirements of the acquiring organization. Some of these important tasks include:
- To ensure secure integration during a merger, both organizations must protect application programming interfaces (APIs) from internet exposure as asset consolidation and control alignment often lead to oversight weakening defenses.
- All staff from the target company must sign new nondisclosure agreements (NDAs) under the acquiring organization, as previous NDAs do not offer sufficient protection.
- Risk levels of the acquiring organization should be reassessed to include risks and audit observations from the target company.
- Employee background verification standards must align; if not, reverification is necessary to uphold HR security.
- Review third-party risk management practices and redraft contracts to include indemnity clauses for prior breaches for the acquiring organization.
- Cyber insurance policies must be updated to cover the newly target assets.
- If a critical application from the target is retained, escrow arrangements should be revisited to make the acquiring company the beneficiary.
- Any regulatory implications based on the target company’s geographic footprint and data handling must be evaluated. Any data migration done to merge records or consolidate data must preserve data confidentiality, integrity, correctness and availability.
- Initiatives like digital transformation or reducing carbon footprint—such as consolidating infrastructure and downsizing data centers—can introduce information security risks in asset management and disposal.
- Business impact assessments (BIAs) and business continuity management (BCM) plans must be revised to reflect the merged environment. The acquiring organization should also update its information security governance roadmap to include new assets and align security policies across both organizations.
- Decommissioned assets from the target company must be securely disposed of. Identity and access management (IAM) practices should be enforced, ensuring removal of unapproved roles and preventing unauthorized access post-merger.
- Data migration must be well-planned and thoroughly tested to avoid disruptions or integrity issues.
The aspects mentioned in the pre and post-merger sections are only a few prominent checks that will help during practical implementation of controls.
Information Security Must Not Be an Afterthought
Information security is critical during M&As, as thorough planning and assessments reveal key insights into a target’s cyber maturity, affecting the acquiring organization’s security posture. Pre- and post-merger risk assessments are essential, followed by the timely implementation of risk management strategies. These efforts should focus on addressing identified gaps within a defined timeframe, using proven risk treatment methods to mitigate vulnerabilities and ensure a secure, seamless integration of systems and data.
Information security should never be an afterthought but should be shifted left and considered a vital consideration as part of the M&A process.
About the authors:
Ramesh Ramani is a Security Engineer at Block Inc. He has over 15 years of experience in the field of Information Technology focusing on Security. He has written several blog posts about Kubernetes Security and has three patents in the field of Information Security. Ramesh can be reached at https://www.linkedin.com/in/ramesh-ramani-08bb6b16/.
Aparna Patil, CISA, ISO 27001 LA, ISO 22301 LI, PCI DSS Implementer is an IS auditor with 10 years of experience in Audit, Risk Management, Compliance and Information Technology. She is actively working to promote Information Security among students and professionals and has provided information security training as well. Aparna can be reached at https://www.linkedin.com/in/aparna-patil-a1302611/.
