Cybersecurity can make or break an M&A deal. Hidden security risks have caused deal cancellations, financial losses, and reputational damage for companies that failed to conduct proper cyber due diligence.
Overlooking the role of cybersecurity in mergers and acquisitions can also mean inheriting data breaches, compliance violations, and financial liabilities — all of which can turn a promising deal into a costly mistake.
So, what are the biggest cybersecurity blind spots that put M&A deals at risk? And more importantly, how can companies identify and mitigate them before it’s too late? Let’s break them down below, including major M&A cybersecurity failures of 2024 — real-world cases that prove just how costly these mistakes can be.
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9 Biggest Cyberthreats in M&A
These high-profile cases are not the only cyberthreats companies face during mergers. M&A transactions create unique security vulnerabilities that cybercriminals — and even regulatory bodies — can exploit.
Below are the biggest cybersecurity threats in M&A that can jeopardize deals and expose companies to financial, operational, and legal risks:
- Data breaches: Unauthorized access to sensitive financial, customer, and employee data during M&A due diligence or post-acquisition integration. These breaches can result in identity theft, financial fraud, regulatory penalties, and reputational damage, making them one of the costliest cyber risks in M&A. Currently, the cost of data breach is a staggering $4.88 million globally.
- Legacy system vulnerabilities: Many acquired companies rely on outdated software, weak encryption, or unsupported security infrastructure that cybercriminals can exploit. If these vulnerabilities are not assessed and patched, they can become entry points for attacks after the merger.
- Third-party risks: Vendors, suppliers, and cloud-based service providers can introduce security weaknesses if they lack strong cybersecurity controls. Attackers may exploit weak third-party security to infiltrate an organization’s network, steal data, or launch ransomware attacks.
- Undetected malware and advanced persistent threats (APTs): Hidden malware, ransomware, or long-term cyber espionage campaigns can remain undetected in an acquired company’s IT systems. If these threats persist post-merger, they can steal sensitive data, disrupt operations, or demand ransom payments.
- Intellectual property theft: M&A transactions often involve high-value patents, proprietary technology, and trade secrets, making them attractive targets for corporate espionage. Competitors or state-sponsored hackers may try to steal or sabotage intellectual property before, during, or after the merger.
- Insider threats: Disgruntled employees, executives with privileged access, or even unintentional human errors can lead to data leaks, sabotage, or fraud during M&A. Insider threats are particularly dangerous because they bypass traditional cybersecurity defenses and can be difficult to detect.
- Regulatory and compliance violations: Merging with a company that fails to comply with GDPR, CCPA, HIPAA, or other data protection laws can expose the acquiring firm to hefty fines, lawsuits, and regulatory scrutiny. Companies must assess whether the target company meets legal cybersecurity standards before finalizing the deal.
- Business email compromise (BEC) and social engineering attacks: Cybercriminals target M&A deals by impersonating executives, lawyers, or financial officers to trick employees into transferring funds or sharing confidential information. These attacks often occur during high-stakes negotiations, when companies are more vulnerable to fraud.
- Integration security gaps: Merging IT systems without a structured cybersecurity strategy can create data exposure risks, misconfigured access controls, and compatibility issues. Attackers take advantage of security lapses that emerge during IT transitions, making post-merger integration a high-risk phase.
3 Major Mergers and Acquisitions Cybersecurity Failures of The Decade
Cybersecurity failures during mergers and acquisitions (M&A) can cripple companies, causing massive financial losses and lasting reputational damage. Let's get into three major M&A cybersecurity disasters that rocked the business world in 2024:
- Verizon’s acquisition of Yahoo: A privacy nightmare
- Marriott's acquisition of Starwood: A case study in cybersecurity failures
- T-Mobile's $60 million fine for national security agreement violations
1. Verizon’s Acquisition of Yahoo: A Privacy Nightmare
In 2017, Verizon finalized its acquisition of Yahoo for $4.48 billion, but the deal almost collapsed when two previously undisclosed data breaches came to light.
Yahoo Data Breaches
- The first breach (500 million accounts): In 2014, hackers stole hashed passwords and security question answers from Yahoo, making it easier to access user accounts across multiple platforms.
- The second breach: A 2013 cyberattack compromised all Yahoo user accounts — making it the largest data breach in history.
The Fallout
Yahoo failed to disclose these breaches before the acquisition, and when Verizon uncovered them, the fallout was massive:
- The deal price was slashed by $350 million as a direct result of the cybersecurity failures.
- Verizon took on legal liability for past breaches, inheriting a security and PR nightmare.
- The Securities and Exchange Commission (SEC) fined Yahoo $35 million in 2018 for failing to disclose the breaches in a timely manner.
2. Marriott's Acquisition of Starwood: A Case Study in Cybersecurity Failures
In 2016, Marriott International acquired Starwood Hotels & Resorts for $13.3 billion, forming the world's largest hotel chain. However, this deal came with massive cybersecurity failures that would later cost Marriott millions in fines and settlements.
The Starwood Data Breaches
- The first breach (June 2014 – November 2015): Hackers stole payment card data of more than 40,000 Starwood customers.
- The second breach (July 2014 – September 2018): Cybercriminals accessed 339 million guest records worldwide, including 5.25 million unencrypted passport numbers.
- The third breach (September 2018 – February 2020): Attackers accessed 5.2 million guest records from Marriott’s own network, including email addresses, phone numbers, and loyalty program data.
The second breach lasted four years and was still active two years after Marriott’s acquisition. Starwood’s compromised reservation system had not yet been fully integrated into Marriott’s IT infrastructure when the breach was uncovered.
Legal and Financial Fallout
- UK ICO Fine (2020): Marriott was fined £18.4 million ($23.9M) by the UK’s Information Commissioner’s Office (ICO) for failing to protect customer data.
- FTC Settlement (2024): The Federal Trade Commission ruled that Marriott and Starwood misled consumers about their cybersecurity practices and failed to secure personal data. As part of the settlement:
- Marriott must implement a comprehensive security program and undergo independent security assessments every two years for the next 20 years.
- Customers can now request deletion of personal data linked to their email or loyalty account.
- Marriott must review and restore stolen loyalty points upon request.
- $52 Million U.S. Settlement (2024): Marriott agreed to pay $52 million to 49 U.S. states and Washington D.C. to resolve similar allegations of poor data security.
Marriott’s experience with Starwood is a cautionary tale for any company acquiring another business with legacy IT systems. It proves how buying a company means inheriting its security problems too.
3. T-Mobile's $60 Million Fine for National Security Agreement Violations
In 2020, T-Mobile completed its $26 billion merger with Sprint, a deal that required compliance with a national security agreement with the Committee on Foreign Investment in the United States (CFIUS).
This agreement was put in place in 2018 because of foreign ownership stakes in both companies — Japan’s SoftBank owned most of Sprint, while Germany’s Deutsche Telekom was the majority shareholder of T-Mobile US.
Security Violations and the $60 Million Fine
Between August 2020 and June 2021, CFIUS found that T-Mobile failed to prevent unauthorized access to sensitive data and did not report some incidents in a timely manner, violating its national security agreement. As a result, in August 2024, CFIUS fined T-Mobile $60 million, marking:
- The largest fine ever imposed by CFIUS
- The first time CFIUS publicly named a penalized company
What Data Was Accessed?
T-Mobile stated that the unauthorized access incidents involved data shared from law enforcement requests and were caused by technical issues during post-merger integration with Sprint. The company also said:
- The information did not leave the law enforcement community
- It reported the incidents promptly and quickly addressed the issue
This enforcement action signals a stricter approach from CFIUS, showing that companies failing to meet their post-merger security obligations will face serious financial penalties.
10 Best Practices for Mitigating Cyber Risks in M&A
The Verizon, Marriott, and T-Mobile's cases teach us crucial lessons about cybersecurity in M&A deals. Here’s a strategic guideline to help you identify, minimize, and manage cyber risks before, during, and after a deal:
- Conduct thorough due diligence
- Assess cybersecurity costs
- Integrate IT systems securely
- Ensure regulatory compliance
- Maintain transparency
- Implement continuous monitoring
- Align cybersecurity cultures
- Protect critical data
- Enforce strict access controls
- Develop a cyber incident response plan
1. Conduct Thorough Due Diligence
Cyber threats are constantly evolving, making due diligence a non-negotiable step in M&A. As Brad Hawkins, CEO of SaferNet, warns: "Hacking, malware, and ransomware are all serious threats to any business, and it's paramount for them to safeguard their digital assets."
To avoid inheriting costly security risks, companies must assess the target’s past breaches, weak spots, and ongoing cyber threats before finalizing the deal.
What to do:
- Request a detailed cybersecurity audit from the target company, covering past breaches, compliance status, and existing security controls.
- Conduct penetration testing and vulnerability assessments to uncover hidden risks before acquisition.
- Review historical security incidents and assess how the company responded to past cyber threats.
- Examine data protection policies to ensure compliance with GDPR, CCPA, HIPAA, or industry-specific regulations.
- Require third-party risk assessments to evaluate the security of the target company’s vendors and service providers.
Who handles it:
- M&A teams: Ensure cybersecurity is part of the due diligence process.
- Chief Information Security Officers (CISOs) & security teams: Conduct technical assessments and penetration testing.
- Third-party cybersecurity firms: Provide an independent risk evaluation.
2. Assess Cybersecurity Costs
Cybersecurity issues can significantly impact a company’s valuation. If a target company has a history of data breaches, weak security, or regulatory violations, buyers may need to renegotiate the price (just like what happened with Verizon’s acquisition of Yahoo), demand additional protections, or even reconsider the deal altogether.
What to do:
- Conduct a cybersecurity risk valuation to determine how security weaknesses impact the company’s financial worth.
- Adjust the purchase price or deal structure if security risks increase the cost of post-merger remediation.
- Use indemnification clauses to hold sellers financially responsible for undisclosed cybersecurity liabilities.
- Establish a cybersecurity escrow fund, setting aside a portion of the purchase price to cover unexpected security breaches after the deal.
- Negotiate cybersecurity insurance requirements as part of the deal to cover potential future breaches.
Legal teams should help you structure contracts to include indemnification, escrow, and insurance provisions. Cybersecurity and risk analysts, on the other hand, quantify the financial impact of security flaws on valuation.
3. Integrate IT Systems Securely
Merging IT systems is one of the most critical — and risky — parts of an acquisition. Poorly managed integrations can lead to data leaks, system downtime, and security vulnerabilities that attackers can exploit. Without a clear cybersecurity strategy, merging companies may unintentionally weaken their defenses, leaving sensitive data exposed.
What to do:
- Map out all critical IT assets — including databases, applications, cloud environments, and network infrastructure — before integration begins.
- Assess system compatibility to identify potential conflicts between legacy infrastructure and modern security tools.
- Align identity and access management (IAM) policies to prevent unauthorized access during and after the merger.
- Leverage AI-powered security tools to detect vulnerabilities and misconfigurations in newly integrated systems.
- Establish a secure migration process for data transfers, ensuring encryption and integrity checks throughout the transition.
- Test security controls in a staging environment before merging live systems to detect vulnerabilities early.
IT and cybersecurity teams should lead the integration process, working alongside M&A and operations teams to ensure security is built into every step. A CISO or an external security consultant should oversee the migration to enforce best practices.
4. Ensure Regulatory Compliance
Regulatory noncompliance can turn an M&A deal into a legal and financial nightmare. If the acquired company has failed to comply with data protection laws the buyer may inherit legal liabilities, government fines, and lawsuits. Merging companies must assess compliance risks early and take corrective actions before finalizing the deal.
What to do:
- Conduct a full compliance audit to ensure the target company meets regulatory requirements for data protection and cybersecurity.
- Review past regulatory violations and ongoing investigations that could lead to fines or legal consequences.
- Ensure that cross-border data transfers comply with applicable laws, such as GDPR’s restrictions on data leaving the EU.
- Align privacy policies, consent mechanisms, and data retention practices to prevent conflicts post-merger.
- Consult legal and compliance experts to determine if regulatory filings or notifications are required before or after the acquisition.
5. Maintain Transparency
Failing to disclose cybersecurity risks can damage trust, trigger regulatory penalties, and even lead to lawsuits. M&A stakeholders — including investors, regulators, and customers — expect full transparency about security risks. Concealing past breaches or vulnerabilities may result in financial losses, reputational damage, and potential deal fallout.
What to do:
- Disclose past data breaches, security incidents, and regulatory fines to buyers, investors, and regulators as part of due diligence.
- Notify customers and affected parties if the acquired company failed to disclose a past breach that may impact their data.
- Ensure that SEC and GDPR breach notification rules are followed if security incidents are uncovered during M&A.
- Work with PR and legal teams to prepare crisis communication strategies in case cybersecurity issues require public disclosure.
- Implement a disclosure timeline that ensures relevant parties receive information in a structured and timely manner.
6. Implement Continuous Monitoring
M&A cybersecurity risks don’t end once the deal is signed. Many post-merger breaches happen when attackers exploit integration gaps, inherited vulnerabilities, or weak monitoring.
Hawkins underscores why ongoing vigilance is critical: "Cybersecurity is not just a one-time thing, but an ongoing process. The landscape is constantly evolving, and so are the methods used by cybercriminals. Businesses need to be adaptive in their approach to security."
Without continuous security oversight, companies risk post-merger breaches, data leaks, and compliance violations — threats that can undermine the success of the acquisition.
What to do:
- Implement continuous threat monitoring to detect cyberattacks targeting newly merged IT systems.
- Conduct post-merger security audits to identify any overlooked vulnerabilities from the acquired company.
- Use security incident and event management (SIEM) tools to track unusual activity across both organizations.
- Deploy real-time breach detection and automated alerts to catch threats before they escalate.
- Ensure that ongoing security assessments remain part of IT operations beyond the initial merger phase.
7. Align Cybersecurity Cultures
A merger isn’t just about combining systems — it’s about aligning cybersecurity mindsets. If one company has strict security policies while the other is lax, the resulting gaps can increase the risk of breaches. Security cultures must be unified to ensure a smooth transition and a strong security posture post-merger.
What to do:
- Assess each company’s cybersecurity maturity level to identify gaps in policies, training, and enforcement.
- Standardize security policies, access controls, and risk management frameworks across both organizations.
- Conduct joint security awareness training to ensure all employees follow the same best practices.
- Align incident response protocols so both teams react consistently to security threats.
- Set clear cybersecurity leadership roles post-merger to avoid confusion and accountability gaps.
8. Protect Critical Data
M&A deals involve massive amounts of confidential data, including financial records, customer information, and intellectual property. If data isn’t secured during the transition, it can be exposed to cybercriminals, insiders, or regulatory violations. Strong encryption and strict data handling policies are critical.
What to do:
- Encrypt all sensitive data before, during, and after migration to prevent unauthorized access.
- Restrict data access to only essential personnel, using role-based permissions.
- Use secure data transfer protocols to prevent leaks when sharing M&A documents.
- Conduct data classification to determine which information is most critical and apply additional protections accordingly.
- Monitor file movements and access logs to detect unauthorized attempts to view or transfer sensitive data.
Legal and cybersecurity teams should implement data loss prevention (DLP) tools to ensure that confidential information isn’t leaked, stolen, or mishandled during the transition.
9. Enforce Strict Access Controls
Excessive user permissions can be a major security risk during M&A. If access rights aren’t carefully managed, employees, vendors, or even cybercriminals may gain unauthorized entry to critical systems. Strict access control ensures that only the right people have the right permissions at the right time.
What to do:
- Implement role-based access control (RBAC) to limit system permissions based on job function.
- Use multi-factor authentication (MFA) for all privileged accounts to prevent credential-based attacks.
- Conduct access reviews before and after the merger to remove unnecessary permissions.
- Apply the principle of least privilege (PoLP) to minimize user access to sensitive systems.
- Set up automated access logging to track any unusual login attempts or privilege escalations.
IT security teams should audit all user accounts in both organizations before integration to remove outdated or excessive permissions that could lead to breaches.
10. Develop a Cyber Incident Response Plan
Even with strong security measures, breaches can still happen. A well-defined incident response plan ensures that both companies are prepared to react quickly and effectively to cyber incidents, minimizing damage and recovery time.
What to do:
- Develop a joint incident response plan that defines roles and responsibilities for both organizations.
- Establish a centralized security operations center (SOC) to monitor and respond to threats post-merger.
- Conduct cyber incident response drills to test how both teams handle real-world attack scenarios.
- Set up rapid notification procedures for executives, legal teams, and regulators in case of a breach.
- Review cyber insurance policies to ensure coverage for security incidents post-acquisition.
Incident response plans should be regularly updated and tested to reflect changes in IT infrastructure, security threats, and regulatory requirements after the merger.
Cybersecurity for Mergers and Acquisitions: Final Thoughts
Cyber threats keep growing and changing. Companies must make cybersecurity checks a top priority when buying other businesses. This helps protect their investment in today's digital world.
From due diligence to post-merger monitoring, every stage of an acquisition carries cybersecurity risks. Taking proactive steps to assess, secure, and integrate IT systems can prevent costly breaches, legal liabilities, and reputational damage.
If you need expert guidance to secure your next acquisition, consider partnering with a cybersecurity agency to navigate risks and ensure a smooth transition.
Cybersecurity for Mergers and Acquisitions: FAQs
1. What is the role of cybersecurity in M&A?
Cybersecurity ensures that the acquiring company doesn’t inherit security vulnerabilities, data breaches, or regulatory violations. It helps protect financial investments, safeguard sensitive data, and maintain compliance with laws like GDPR and HIPAA.
2. What is the role of technology in mergers and acquisitions?
Technology streamlines the M&A process by enabling secure data transfers, automating risk assessments, and integrating IT systems efficiently. Advanced security tools, like AI-powered threat detection and encryption, help prevent cyber risks during and after the merger.
3. How can companies prevent cybersecurity risks in M&A?
Companies can reduce risks by conducting thorough cyber due diligence, securing IT integrations, enforcing strict access controls, and continuously monitoring for cyber threats post-merger. Partnering with a cybersecurity agency can further strengthen security throughout the process.
