Key Things You Should Know About Cyber Due Diligence During M&aTransactions

Key Things You Should Know About Cyber Due Diligence During M&aTransactions

Major cyber-attacks, like the one that targeted the Colonial Pipeline in May of 2021, may seem new and newsworthy to many. The reality is that the fuel service slowdowns Colonial faced are just one of the countless incidents that reduced or even stopped business altogether for firms across the country last year.

Key Things You Should Know About Cyber Due Diligence During M&A Transactions

Cybersecurity due diligence represents a critical phase in the M&A transaction lifecycle. Without proper review, something that seems insignificant like an old computer system or the lack of proper security controls could cause problems during the integration phase or even prevent a close altogether. Understanding a company’s cyber risk profile can have large implications on the valuation of a company, the nature of the terms, and the future likelihood of a cyber-attack being catastrophic or not.

The cyber due diligence process begins by looking at the current coverages a company has. The loss history is assessed, and any prior breaches are examined. Understanding the current cyber risk exposures as well as the history of losses then aids in structuring the cyber due diligence that will cover the buyer if anything were to happen in the future.

Often, when cyber due diligence is left for last or overlooked entirely, the sell-side company will say they have adequate controls in place, and there should be no cause for concern. Then, years later, a loss occurs, and the buyer is left paying massive fees to fix the problem themselves. In cases like these, a different program called Representations and Warranties Insurance (RWI) could be added to provide excess coverage over the existing cyber policy. These decisions ultimately shape the profitability of the transaction as a whole.

Obtaining cyber due diligence as early in the process as possible ensures that the buy-side company will not have to deal with these issues. Having the cyber be a point of focus earlier rather than later in the due diligence process enables your broker to negotiate a tail that will cover future losses that result from past issues that go undiscovered.

Individuals and companies who need help navigating the complexities of insuring their assets should lean on experts who have proven success in helping clients get the coverage they need, even in a hard market.

Contact us today to learn more about how we can help you assess your risk profile and protect your assets and investments.

Disclaimer

This material has been prepared for informational purposes only and was generated from information provided to BKS from the client and/or third-party sources. Therefore, BKS makes no warranty or representation(s) as to the accuracy or appropriateness of the data and/or the analysis herein. This information is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors for those services

No Comments yet!

Table of Contents

Recents Post
Successful company with happy employees in modern office
What is the BKS Employee Care Center?
Photo - 2023-11-16T114517
[Video] BKS Partners Employee Care Center Overview
Photo - 2023-11-16T105918
Know Your Network: Tips to Fortify Your Cybersecurity

This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The content of this document is made available on an “as is” basis, without warranty of any kind. Baldwin Risk Partners, LLC (“BRP”), its affiliates, and subsidiaries do not guarantee that this information is, or can be relied on for, compliance with any law or regulation, assurance against preventable losses, or freedom from legal liability. This publication is not intended to be legal, underwriting, or any other type of professional advice. BRP does not guarantee any particular outcome and makes no commitment to update any information herein or remove any items that are no longer accurate or complete. Furthermore, BRP does not assume any liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Persons requiring advice should always consult an independent adviser.

Baldwin Risk Partners, LLC offers insurance services through one or more of its insurance licensed entities. Each of the entities may be known by one or more of the logos displayed; all insurance commerce is only conducted through BRP insurance licensed entities. This material is not an offer to sell insurance.

Get in contact with an advisor today to see how BKS can support you.