Cybersecurity Risk Costs PE Deals $2.1M
A new report from Kroll finds that cybersecurity issues pose a significant risk to private equity transactions. On average, cybersecurity problems have a financial impact of $2.1 million on deals. The findings underscore the increasing importance of thorough cyber due diligence in M&A processes.
- The financial impact of cybersecurity issues on private equity deals often exceeds the initial quantifiable costs, with long-term consequences such as regulatory investigations and deal timeline delays contributing to the total expense. - A significant majority of private equity firms, 80%, have encountered disruptions from cyberattacks during the portfolio hold period. Of these, nearly a third resulted in business disruption or downtime. - There is a notable disparity in cybersecurity preparedness based on firm size. 81% of large private equity firms with over $25 billion in assets under management conduct cyber due diligence as a standard part of their transaction process, compared to only 29% of smaller firms. - Inherited vulnerabilities are a primary concern in acquisitions, including outdated IT systems and inadequately managed past data breaches. The integration of disparate security infrastructures and cultures also presents a significant challenge. - Cybercriminals are increasingly targeting private equity firms and their portfolio companies, with a noticeable uptick in cyber incidents occurring around the time of a deal's closure. - Despite the high stakes, with over 70% of dealmakers viewing undisclosed breaches as a reason to terminate a deal, many cybersecurity issues are only discovered after the transaction is complete. - Looking ahead, 96% of private equity firms anticipate that the importance of portfolio cybersecurity will increase in the coming year. More than half expect the financial impact of cyberattacks to grow and incidents to become more challenging to manage. - Common hidden costs stemming from cybersecurity issues include unexpected remediation expenses (44% of firms), compliance or regulatory-related litigation (29%), and challenges with IT system integration (30%).
