Cyber security breaches pose a real threat to M&A deals, but companies are becoming too complacent in the assessment of cyber risk, according to a recent survey of 214 dealmakers from international law firm Freshfields Bruckhaus Deringer.
The firm reports that 90% of survey respondents believe cyber breaches result in deal reduction value and 83% say their companies would abandon a deal if cyber breaches are identified during due diligence or mid-transaction.
Dealmakers recognize cyber's growing threat, but aren't addressing the issue: More than 75% of respondents say that cyber security is not a risk that is analyzed in-depth during due diligence.
"You wouldn't dream of buying a chemicals plant without assessing environmental risk, so why would you buy a data-driven business without assessing the risks it faces around data management and cyber-security?" says Chris Forsyth, co-head of the firm's international cyber security team.
On the agent and brokers' front, NU advisory board member and OPTIS founding principal Tim Cunningham says that cyber's impact on M&A activity is low. "Typically, agents and brokers don't have access to credit card information as transactions are typically handled by check. If an insured is paying a direct bill, it is to the insurance carrier, so the risk is on their side.
"You could have some data breach, but I don't think anything enormous would dampen M&A activity in the insurance industry," he says.
Top concerns include acquisition targets suffering cyber attacks during deal discussion, the target being proven as a victim of data or intellectual property theft by cyber attack, and evidence of a target not handling a past breach effectively.
Acquirers are mostly concerned with cyber security during transactions, which doesn't translate to sellers as 81% are unconcerned or slightly concerned about the risk of the deal falling through.
Besides the low impact to agent and broker M&A activity, there is more good news stateside. More American respondents (51%) say that cyber security has become a part of due diligence than European respondents (39%), and the U.S. has seen more suppliers audited, more internal cyber security specialists appointed and more external cyber security consultants engaged to review risks.
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