But when you think of M&A, cybersecurity is typically not top of mind. However data visibility and data protection are crucial for M&A success. For example, in a December 2020 survey conducted by West Monroe Partners, 60 percent of respondents reported that cybersecurity issues were discovered at an acquired company post-deal, resulting in a decrease in the deal valuation. Without robust data security, all the best plans for a successful M&A may not matter, and the risk of the acquisition can increase dramatically.
The Role of Data Visibility in M&A Success
In today's data-driven business environment, access to accurate and comprehensive data is essential for making informed decisions during the M&A process. Visibility into sensitive data helps organizations assess the value and potential risks associated with a transaction and can ensure a smooth post-merger integration.
But gaining visibility is a significant challenge for most organizations. Despite the critical importance of data visibility, many companies still struggle to gain a clear understanding of the sensitive data they hold or what their target organizations hold. This lack of visibility can lead to inaccurate valuations, compliance issues, and integration difficulties, ultimately hindering the success of the M&A transaction. Accurate data visibility is necessary for the following:
Evaluating potential M&A targets
For a successful M&A transaction, both the acquiring and target company must have a thorough understanding of the data they possess. Relevant data might include financial records, customer information, intellectual property, and other sensitive data for evaluating the target company's value and potential synergies. With a clear view of this data, the acquiring company can make informed decisions about the transaction, identify potential risks, and determine the appropriate valuation of the target company.
Decision-making and negotiations
During the negotiation phase of an M&A deal, both parties must share data relevant to the transaction. Transparency regarding sensitive data enables both parties to better understand each other's operations, assets, and liabilities, leading to more productive negotiations and mutually beneficial terms. With good data visibility, potential deal-breakers and areas of concern can be identified and addressed before moving forward.
Data security and compliance
M&A transactions often involve the transfer of significant amounts of sensitive data, potentially exposing both organizations to possible data breaches and regulatory non-compliance. Ensuring that sensitive data is adequately protected and compliant with relevant regulations (like GDPR or CCPA) is essential for mitigating risks associated with the transaction. Organizations across borders may be governed by different compliance regulations. Companies with solid data visibility are better positioned to assess their compliance posture and that of their target organization, minimizing the chances of unexpected legal or financial consequences arising from non-compliance.
With Poor Visibility Comes M&A Pitfalls and Risks
Companies that understand and address the risks and challenges associated with poor data visibility are typically better equipped for successful M&A transactions and can avoid potential pitfalls, including the following:
Inaccurate target company valuation
Lack of visibility into sensitive data can lead to inaccurate assumptions about a target company's value, which may result in either overpayment or underpayment for the acquisition. Inaccurate valuations can impact the acquiring company’s ROI and potentially harm the long-term success of the newly formed entity.
Potential legal and regulatory compliance issues
Poor visibility into sensitive data can lead to unforeseen legal and regulatory compliance issues. For instance, if a target company is found to be non-compliant with data protection regulations after the acquisition, the acquiring company could face fines, penalties, and reputational damage. Identifying and addressing compliance issues early in the M&A process is crucial for mitigating these risks and protecting the acquiring company from potential liabilities.
Integration challenges and unforeseen costs
The repercussions of poor data visibility can also be felt during the post-merger integration phase. Merging systems, processes, and data is a significant challenge, but a lack of understanding about any sensitive data involved may result in costly mistakes, extended timelines, and operational inefficiencies. Plus, unidentified data security vulnerabilities can lead to data breaches and other security incidents.
Reputational damage, loss of customer trust
In the event of a data breach or compliance issue due to poor data visibility during an M&A transaction, the newly formed entity may suffer long-lasting adverse effects on the company's brand and market position, ultimately undermining the value of the acquisition.
Three Strategies for Improving M&A Data Visibility
As outlined above, the pitfalls and risks of poor data visibility are substantial. Best practices for boosting data visibility for a successful M&A include:
Conduct comprehensive data audits and assessments
Before embarking on an M&A transaction, both parties should conduct thorough data audits and assessments to gain a clear understanding of their sensitive data. This process involves identifying, classifying/categorizing, and evaluating the integrity and security of the data, as well as determining its compliance with relevant regulations. Data audits and assessments can help uncover potential issues and provide valuable insights for decision-making throughout the transaction.
Implement data governance frameworks and processes
Establishing robust data governance frameworks and techniques can significantly improve data visibility and protection during the M&A process. Data governance is all about setting policies, standards, and procedures for managing and protecting sensitive data and assigning responsibilities to specific roles within the organization.
Data access governance, which focuses specifically on controlling and monitoring access to an organization's data assets, is also essential for M&As. Companies involved will want to answer these data access governance questions:
• Where is my business-critical content?
• Is my sensitive data being shared only with those who are authorized to see it?
• Has data been shared or accessed inappropriately?
By implementing strong data governance practices, companies can ensure that sensitive data
is consistently managed, protected, and compliant with regulatory requirements throughout the M&A process.
Leverage data security posture management solutions
Data security posture management (DSPM) solutions can help organizations gain better visibility into their sensitive data and identify potential vulnerabilities. DSPM enables organizations to gain a clear view of the “where, who and how” of their sensitive data: where it is, who has access to it, and how it has been used. Best-of-breed DSPM solutions can autonomously discover, categorize, and remediate data — whether it’s structured or unstructured and stored in the cloud or on-premises.
Robust DSPM solutions develop a semantic understanding of data and provide a thematic category-oriented view into all sensitive data — from financial to intellectual property to business confidential to PII/PCI/PHI. These tools help companies proactively address data security issues and improve their overall data security posture.
By implementing these strategies, investing in proper data management practices, and leveraging the right tools and expertise, companies can significantly improve their data visibility during M&A transactions. By doing so, they can accomplish the key goals of a successful M&A, make more informed decisions, protect private data, mitigate risks, and maximize the potential benefits of the deal.