Sergio Delle Vedove/Shutterstock.com

 

The 2016 revelation that Yahoo suffered a breach affecting 500 user million accounts was a wake up call for merger and acquisitions (M&A) professionals everywhere. The company, after all, disclosed the incident just as a deal was pending for its acquisition by Verizon.

While the acquisition ultimately went through, the breach still led to resignation of Yahoo's then-general counsel Ron Bell. In October 2017, Verizon disclosed that as many as three billion Yahoo accounts were also affected by an August 2013 incident as well.

For M&A professionals, the risks of not thoroughly investigating a target company's cybersecurity health are clear. And, according to a recent survey, most practitioners are paying heed to the warnings.

Conducted among 142 executives, investment bankers, attorneys and venture capitalists that work within M&A, Morrison & Foerster's 2017 M&A Leaders survey found that over the past year, focus among these professionals on cybersecurity due diligence has increased, with 82 percent placing increased emphasis on cybersecurity practices and standards at target companies.

And while this level remains unchanged from the MoFo's 2016 M&A Leaders Survey, Robert Townsend, co-chair of MoFo's Global M&A Practice Group, said there was actually a growing awareness of cybersecurity year-over-year.

“In the survey, the same number of respondents noted a heightened focus on cybersecurity in the prior year. The best way to interpret that is that 82 percent of respondents are saying cyber is an even higher focus than it was the prior year. It is a continuous trend of growing concern.”

“Not only is the concern greater, but we are seeing more deals not going through or failing because of cybersecurity and privacy issues,” added Christine Lyon, a partner at MoFo who focuses on data handling and protection issues. “The trend is very much toward this being a growing issue in deals.”

The focus on cybersecurity in M&A comes as interest in acquiring or merging with growing technology providers and companies, particularly those that deal in artificial intelligence, is expected to grow. When asked what emerging technologies would drive M&A activity over the next three years, 60 percent of respondents cited AI, while 25 percent said internet-of-things (IoT), and 10 percent cited blockchain.

Given that companies with AI and other advanced technology offerings usually store and process large volumes of data, they not only have more total data that can be stolen by bad actors, but their activities may also likely to fall under the purview of data protection regulations like the EU's upcoming General Data Protection regulation (GDPR), among others.

Lyon therefore noted that in managing such M&A deals, it's important to “really understand what the laws are, and what measures have been taken to comply with all the laws around the world, particularly those concerning information about individuals.”

Sergio Delle Vedove/Shutterstock.com

 

The 2016 revelation that Yahoo suffered a breach affecting 500 user million accounts was a wake up call for merger and acquisitions (M&A) professionals everywhere. The company, after all, disclosed the incident just as a deal was pending for its acquisition by Verizon.

While the acquisition ultimately went through, the breach still led to resignation of Yahoo's then-general counsel Ron Bell. In October 2017, Verizon disclosed that as many as three billion Yahoo accounts were also affected by an August 2013 incident as well.

For M&A professionals, the risks of not thoroughly investigating a target company's cybersecurity health are clear. And, according to a recent survey, most practitioners are paying heed to the warnings.

Conducted among 142 executives, investment bankers, attorneys and venture capitalists that work within M&A, Morrison & Foerster's 2017 M&A Leaders survey found that over the past year, focus among these professionals on cybersecurity due diligence has increased, with 82 percent placing increased emphasis on cybersecurity practices and standards at target companies.

And while this level remains unchanged from the MoFo's 2016 M&A Leaders Survey, Robert Townsend, co-chair of MoFo's Global M&A Practice Group, said there was actually a growing awareness of cybersecurity year-over-year.

“In the survey, the same number of respondents noted a heightened focus on cybersecurity in the prior year. The best way to interpret that is that 82 percent of respondents are saying cyber is an even higher focus than it was the prior year. It is a continuous trend of growing concern.”

“Not only is the concern greater, but we are seeing more deals not going through or failing because of cybersecurity and privacy issues,” added Christine Lyon, a partner at MoFo who focuses on data handling and protection issues. “The trend is very much toward this being a growing issue in deals.”

The focus on cybersecurity in M&A comes as interest in acquiring or merging with growing technology providers and companies, particularly those that deal in artificial intelligence, is expected to grow. When asked what emerging technologies would drive M&A activity over the next three years, 60 percent of respondents cited AI, while 25 percent said internet-of-things (IoT), and 10 percent cited blockchain.

Given that companies with AI and other advanced technology offerings usually store and process large volumes of data, they not only have more total data that can be stolen by bad actors, but their activities may also likely to fall under the purview of data protection regulations like the EU's upcoming General Data Protection regulation (GDPR), among others.

Lyon therefore noted that in managing such M&A deals, it's important to “really understand what the laws are, and what measures have been taken to comply with all the laws around the world, particularly those concerning information about individuals.”