Cyber Security Due Diligence Has Become a Fundamental Part of M&A Transactions

Data breaches and a failure to comply with governmental and industry standards can impact a company in many ways, as Yahoo is finding out the hard way. The company’s recent disclosure of a massive data breach, which resulted in 500 million user accounts being compromised, resulted in multiple class action lawsuits being filed against the company and may trigger a government investigation into why it took so long to disclose the breach.

The Yahoo breach and what it says about cyber security due diligence has also shaken up the mergers and acquisitions (M&A) world, and the hack may have put its planned acquisition by Verizon at risk. CSO Online reports:

Verizon has signaled that Yahoo’s massive data breach may be enough reason to halt its US$4.8 billion deal to buy the internet company.

On Thursday, Verizon’s general counsel Craig Silliman said the company has a “reasonable basis” to believe that the breach involving 500 million Yahoo accounts has had a material impact on the acquisition. This could give the company room to back out or get a large discount.

“We’re looking to Yahoo to demonstrate to us the full impact,” he added. “If they believe that it’s not, then they’ll need to show us that.”

As data breaches, ransomware, DDoS attacks, and other cyber attacks escalate in frequency, severity, and cost, cyber security due diligence has emerged as a serious issue in the M&A sector. Information security issues at an acquisition target could significantly impact a deal’s price, keep the deal from going forward at all, or, if the problems are not detected during the due diligence process, inflict a world of pain on the acquirer company; should its deal to acquire Yahoo go through, Verizon is reportedly planning to put $1 billion in reserve to cover the costs to clean up the breach.

While the Yahoo breach has put cyber security due diligence into the spotlight, scenarios where M&A deals were negatively impacted by cyber security issues have been occurring for some time. A recent survey of senior M&A executives by consulting firm West Monroe Partners, published several months before the Yahoo hack, found the following:

• 80% of respondents felt cyber security issues were “highly important” to M&A due diligence
• 40% of acquirers had discovered a cyber security issue at an acquired firm after a deal had gone through
• 32% of respondents pointed to a lack of qualified personnel involved in the diligence process in recent deals

Respondents also reported that the three most common cyber security problems uncovered during the M&A due diligence process were compliance issues (70%), the lack of a comprehensive data security infrastructure (40%), and vulnerability to insider threats (37%).

What Can Acquirers and Acquisition Targets Do?

The Yahoo hack did not happen out of thin air; it was the result of years of the company repeatedly putting the product user experience ahead of security and refusing to implement even the most basic proactive cyber security measures. Acquisition targets must take their cyber security as seriously as they take their accounting practices. This includes not just protection against breaches but ensuring that the company is compliant with all applicable regulatory and industry standards. Conversely, acquirers must pore over a target company’s cyber security and compliance practices as carefully as they would the company’s books.

Additionally, nearly 1/3 of the respondents to the West Monroe survey complained of a lack of qualified personnel to perform cyber security due diligence. This is not surprising. Cyber security is a complex, dynamic field; new threats and technologies are emerging daily, and most firms do not have the monetary or human resources to handle their own information security in-house. Outside cyber security experts should be involved in the M&A process on both ends. Target companies should have security vulnerability studies conducted before putting themselves on the market, and acquirers must enlist help to perform due diligence during the acquisition process.

The cyber security experts at Continuum GRC have deep knowledge of the cyber security field, are continually monitoring the latest information security threats, and are committed to protecting your organization from internal threats and external security breaches. Continuum GRC offers full-service and in-house risk assessment and risk management subscriptions, and we help companies all around the world sustain proactive cyber security programs.

Continuum GRC is proactive cyber security®. Call +1 (888) 896-6207 to discuss your organization’s cyber security needs and find out how we can help your organization secure its systems.

Schedule some time with our Superheroes for a Free Assessment!

Vote hacking is a legitimate concern, and election officials need to take it seriously.

Right alongside immigration, healthcare, and the minimum wage, cyber security has emerged as a major – and contentious – issue in this year’s presidential election. First, the Democratic National Convention’s email server was hacked, and thousands of embarrassing emails were published on WikiLeaks. Now, concerns about vote hacking have arisen in light of breaches of voter databases in Illinois and Arizona, which compromised the personal information of as many as 200,000 voters.

It’s important to note that these breaches involved state voter databases, not voting machines themselves, and there is no evidence to suggest that cyber criminals have ever managed to breach voting machines. However, between disturbing results from recent studies on voting machine cyber security, including one by Princeton researchers that found some machines to be less secure than iPhones, another study showing that nearly all Americans are “unsettled” about data breaches in general, and GOP candidate Donald Trump suggesting that the election could be “rigged” and encouraging his supporters to “monitor the polls,” American voters are understandably concerned as they prepare to go to the polls.

The notion that cyber criminals could influence the outcome of an election is a legitimate concern that must be addressed with proactive cyber security.

How safe are voting machines?

Unfortunately, not very. Many voting machines are very old, dating back to just after the infamous Bush-Gore race of 2000, when they were – ironically – embraced as an allegedly “safer” and “more accurate” alternative to paper votes. Those claims may have been true when the machines were first built, but voting machines run on computers, and computers need to be updated. Many voting machines never were. Thus, there are situations where voting machines still run antiquated, unsupported systems such as Windows 2000 and XP. Even worse, some machines provide no paper audit trail, which means that allegations of vote hacking can be neither proven nor disproven.

Some election officials argue that voting machines are generally not connected to the internet, thus enjoying “security through isolation.” But “security through isolation” is no match for a determined cyber criminal; the Stuxnet virus made its way into an air-gapped industrial control system at an Iranian nuclear plant through an infected thumb drive brought into the facility by a malicious insider.

Others who seek to downplay the possibility of vote hacking point to the logistics of manually installing malware; there are tens of thousands of voting machines across the U.S., and getting to every one of them would be nearly impossible. However, it would not be necessary to compromise every single voting machine in the country to alter the election results. Cyber criminals could focus on swing states, and then hone their targets even further to specific voting districts where the results are expected to be very close.

Vote hacking isn’t the only way to influence the election or call the results into question.

Hackers could also choose not to actually hack votes at all, and instead seek to cause enough havoc to discourage some Americans from voting and sow widespread doubt regarding the election results. Cyber criminals could, for example, delete or alter voter registration data, which would prevent some voters from being able to cast ballots. They could also launch Election Night DDoS attacks on polling places that use the internet to verify voter records or hack media feeds and prevent news networks from accessing exit poll information and election returns.

Election officials need to take proactive cyber security measures immediately.

A good first step to combat allegations of vote hacking are two bills recently introduced by Rep. Hank Johnson (D-Ga.), the Election Integrity Act of 2016 and the Election Infrastructure and Security Promotion Act of 2016. The first bill would address the cyber security vulnerabilities that make voting machines susceptible to vote hacking by prohibiting the machines from being connected to the internet and requiring regular audits, frequent software updates, and the ability to produce a paper audit trail. The second bill would designate voting machines as part of the nation’s critical infrastructure, which would put them under the authority of the Department of Homeland Security and put them in the same category as the U.S. power grid and water supply.

However, cyber security efforts cannot stop with voting machines; voter databases and polling places must be secured. Since election officials are not information security experts, the help of qualified cyber security experts should be sought to identify and patch vulnerabilities. In this volatile political climate, the integrity of our electoral system is a matter of national security. If American voters refuse to accept the legitimacy of November’s election results, irreparable damage could be done to our nation. Time is short, and election officials need to act immediately to secure voting machines, voter databases, and polling places, and reassure a nervous voting public.

The cyber security experts at Continuum GRC have deep knowledge of the cyber security field, are continually monitoring the latest information security threats, and are committed to protecting your organization from internal threats and external security breaches. Continuum GRC offers full-service and in-house risk assessment and risk management subscriptions, and we help companies all around the world sustain proactive cyber security programs.

Continuum GRC is proactive cyber security®. Call 1-888-896-6207 to discuss your organization’s cyber security needs and find out how we can help your organization secure its systems.

[bpscheduler_booking_form]