Case Study: M&A Due Diligence

NorthCap Cyber M&A Due Diligence for Private Equity Acquisition 

In an increasingly complex cybersecurity landscape that’s riddled with unknowns for many investors, acquiring a business can be a daunting thought. For many of our clients, the concerns can be narrowed down to: 

1. Are critical assets and sensitive data well-managed to ensure revenue streams are protected and regulatory requirements are met? 

2. Have they experienced any cyber incidents in the past that they may still be vulnerable to? 

3. Is leadership well-equipped to govern and promote good cyber hygiene appropriate to the risk-profile of the business? 

4. How prepared is the business to detect, contain, and respond to a cybersecurity incident? 

5. Post-acquisition, what investments or critical changes do we need to help them implement to protect and create business value? 

Read on to understand how we answer these questions during M&A pre-deal activities… 

Executive Summary:  

NorthCap Cyber was engaged by a prominent Global Private Equity House with over $20b assets under management to conduct a comprehensive Cyber Due Diligence Assessment.  

With a window of one week and within restricted access to assets and stakeholders, NorthCap was tasked with using its wealth of experience and capabilities to assess the cyber-posture of the target organisation comprehensively and accurately. 

Target Profile: 

Size: Group comprising of 150 companies, 10,000 people a turnover of $1billion.

Industry: UK-based environmental, engineering and technical services group  

Threat Profile: Company sub-entities are CNI and operate in high-risk jurisdictions. 

Challenges:  

The primary challenges in this Cyber Due Diligence Assessment were twofold:  

1. To comprehensively assess the cybersecurity landscape of a UK engineering firm deeply involved in critical infrastructure, operating across high-risk areas. This firm faced potential threats from state-sponsored cyber-attacks and the complexities of managing sensitive environmental data. 

2. The assessment needed to scrutinise the firm’s network of partners and third-party vendors, each adding layers of cyber risk. Our objective was not only to identify and mitigate existing vulnerabilities but also to evaluate the firm’s readiness against future cyber threats, ensuring the firm’s cyber defences were robust enough to support ongoing compliance and operational integrity in an ever-evolving threat environment. 

This proactive approach was crucial to securing a significant investment, aiming to make the merger resilient against the dynamic challenges of the global cybersecurity landscape. 

Scenario:

We engaged in a comprehensive due diligence program over a two-week period to evaluate the cybersecurity posture of the target acquisition and assess the potential risks associated with the acquisition. The following steps outline the process we undertook:

1. Assessing Cyber Posture: 

• We conducted a review of the target acquisition’s data and policies to gain firsthand insights into their cybersecurity infrastructure, practices, and culture. 
• Interviews were conducted with key personnel, including IT administrators, security officers, and executive leadership, to understand their approach to cybersecurity risk management. 

2. Technical Evaluation: 

• We performed technical assessments of the target acquisition’s IT systems, networks, and infrastructure to identify vulnerabilities, misconfigurations, and potential threats. 
• Dark web and vulnerability assessments were conducted to assess the resilience of the organisation’s defences against cyber-attacks. 

3. Risk Analysis: 

• The findings from the assessment were analysed to determine the level of cybersecurity risk posed by the target acquisition, taking into account factors such as its business operations, industry sector, and geopolitical risk exposure. 
• Special attention was paid to the company’s interactions with high-risk countries, such as China, Russia, and Iran, to assess the potential for espionage, intellectual property theft, or other malicious activities. 

4. Gap Identification: 

• Despite being reasonably mature in cybersecurity risk management, we identified critical gaps in the target acquisition’s security posture, including areas such as third-party vendor risk management, employee awareness training, and incident response preparedness. 

5. How Did We Deliver Value? 

• For the Private Equity House, we gave the confidence to proceed with the acquisition knowing that they had data-driven evidence of the target’s areas of strengths and weaknesses in managing cybersecurity effectively in order to protect and nurture critical assets and revenue streams. Critically, we gave them the insight they needed to know where investment was required, and why, so that on day one post-acquisition, they could have proactive and productive conversations with the target to build their resilience and create value. 
• For the target, we gave them a clear independent view of their current cyber posture. Providing them with a business case for investment needs and how to prioritise those investment needs to ensure effective cyber risk management. 
• For both parties, outside of the insights delivered in the report, we created a connection. Enabling a positive relationship to be fostered between investors and the target organisations IT Team. 

Samuel Brown, Managing Partner of NorthCap Cyber shared his views on this programme which formed a critical piece of the M&A due diligence puzzle:  

“It’s easy to overlook the critical role that independent parties like NorthCap play in fostering positive relationships between investors and the organisations they acquire. For us, this project was about more than just identifying red flags or concerns for our client. It was about ensuring that, post-acquisition, both parties had a clear understanding of cybersecurity priorities and could work effectively together to address any gaps in maturity identified through our assessment. 

Many companies underestimate the importance of conducting thorough cyber due diligence. The days when cybersecurity could be an afterthought are long gone. Failing to enlist the support of assurance partners like NorthCap during M&A transactions can be the difference between realising a profit or incurring a loss. Numerous examples in the news highlight cases where investors did not fully understand what they were buying or how best to support their acquisitions. By involving NorthCap, we help our clients secure their investments and build strong, synergistic relationships from the start.” 

Samuel Brown
Managing Partner

Conclusion

Our comprehensive due diligence assessment provided the Private Equity House with crucial insights into the cybersecurity risks associated with acquiring the UK-based engineering firm. With clear recommendations and actionable insights, they can confidently move forward, knowing that cybersecurity considerations are thoroughly integrated into their acquisition strategy.

Ready to ensure your next acquisition is secure and resilient?

Contact NorthCap Cyber today to learn how our expert M&A due diligence services can protect your investments and pave the way for successful integration and growth.

Let us help you navigate the complexities of cybersecurity and build a robust future for your business.