Cybersecurity 101: Managing risk to be more resilient
The threat landscape is rapidly expanding and in 2022, there’s one thing at the forefront of every corporate agenda: cybersecurity. In a world of sophisticated cyberwarfare and rising geopolitical tensions, cybersecurity threats are evolving at an even faster pace, impacting entire businesses, crippling operations, and risking hard-won reputations.
As a result, defence and cybersecurity stocks are seeing a sharp rise in value as investors take note of pledges by the EU to boost defence spending, and governments warn of an increased threat of cyber intrusions following Russia’s invasion of Ukraine.
This is resulting in record levels of investment being poured into cybersecurity from venture capital, corporate M&A, and private equity. In fact, according to a recent Datasite survey ,cybersecurity is the top TMT M&A investment opportunity for 2022.
The allure of cybersecurity
Cybersecurity has long been a hot investment area. Indeed, the industry raised billions in venture capital and sold solutions at a rapid rate to support companies forced to accelerate their digitalisation efforts and support remote working during the worst of the global pandemic. Cybersecurity firms have raised more than £1bn external investments in 84 deals in 2021. And the UK cybersecurity industry increased its contribution to the UK economy to £5.3bn in 2021, rising by a third from 2020.
Of course, cyber criminals also rose to the challenge and sought ways to exploit digital defences. However, the UK Government has taken note, and its operational resilience regime will issue regulatory changes later in April to ensure companies comply with, and improve their cyber resilience so that they are better protected.
So, it’s clear that the need for cybersecurity is greater than ever, and governments and companies are eager to invest. But what is the best way to effectively future-proof organisations and work towards cyber resilience?
Sector opportunities and challenges
According to a recent Datasite survey, while cybersecurity is forecasted to pose the greatest opportunity for investment, it is also expected to be the biggest challenge for UK CEOs. Senior leaders have started to understand that managing cyber risk for competitive advantage and long-term success starts in the boardroom and the C-suite, yet they admitted cybersecurity is also one of the most difficult areas to manage, particularly when it comes to executing deals and integrating assets, post-acquisition. Moreover, more than a third (37%) of CEOs believe cybersecurity and the ability of staff to work in a virtual environment are the biggest challenges when executing TMT deals virtually.
Navigating human error and malicious attacks
The old methods of preventing leaks, by limiting the ‘inner circle’, are no longer sufficient. Modern, sophisticated, and highly targeted hacking means businesses need to do everything possible to mitigate risk. It’s also important to remember that not all data leaks are the result of malicious attacks. They can come from human error and unintentional disclosures as well. Hence, cybersecurity must be approached from an organisation-wide perspective.
An effective defence strategy that incorporates technical solutions with proper management of people and processes is vital. Often, such risks are under the radar, underestimated and addressed only belatedly. Still, gaps in data protection, undiscovered breaches, regulatory violations and other security gaps not only hinder business operations, but they also threaten transactions.
From an investment perspective, assessing cybersecurity risks has become a crucial aspect of the due diligence process. Data breaches can drastically lower the value of a target company. Furthermore, lax cybersecurity standards or insufficient protective measures can result in the acquirer walking away from a deal. That’s why it’s critical for acquirers to conduct a thorough assessment of the IT infrastructure of a target organisation. IT processes, operating systems, documentation, risk assessment, security standards, and previous breaches of security should all be reviewed during the due diligence phase.
Furthermore, businesses must be open to using multiple tools to provide maximum security against data loss prevention, or for encryption and protection. Virtual data rooms (VDR), which provide high security platforms for data and documentation collaboration, have already been embraced by many corporations, and are an integral part of M&A transactions. They secure every aspect of the M&A process, ensuring the right documents reach the right people at the right time, simplify the tedious due diligence process and provide deal information backup.
As international tensions escalate and cyber threats mount, it’s important that leaders keep their workforces well-informed of the way threats can infiltrate a company, as well as use effective tools to future-proof their operations from risk.