Protecting Valuation in Private Equity Deals: The Role of Cybersecurity Considerations
The significance of cybersecurity risk in the deal lifecycle cannot be ignored, as it can impact businesses of all sizes and industries. Cybersecurity risk has become more sophisticated and harder to detect, making cyber threats more harmful and costly than ever. Cybersecurity and Data Privacy should be included in the due diligence process as it provides insights into the potential need for investment, potential risks to be considered in valuation and to protect the value of the business both during and after the acquisition. Private equity firms should assess the security posture of potential investments, incorporate cyber risks into due diligence assessments, and draft effective contractual protections for investors and insurers.
Three key case studies demonstrate the importance of cybersecurity in the deal lifecycle, as failure to respond to a breach can result in consequences and threaten valuation at any point. These studies show that cybersecurity can impact deal-making, post-deal close cybersecurity measures are critical and cybersecurity incidents can lead to unforeseen regulatory costs. A business that cannot defend itself from threat actors is worth less than one that can with proper defenses and controls.