Cybersecurity due diligence in M&A deals: Buyers’ review

Cyber incidents are one of the most expensive risks companies face during mergers and acquisitions (M&A). According to IBM, the global average cost of a data breach was $4.4 million in 2025.

For investors and buyers, this creates real business risk. Weak information security practices at the target company can lead to regulatory fines, operational disruptions, and reputational damage.

As a result, cybersecurity due diligence has become a standard and critical component of the modern M&A lifecycle. Before signing a definitive agreement or closing a deal, buyers want to understand how a company handles security incidents, whether it detects potential threats, and the cybersecurity risks it faces.

The goal is simple: identify problems early to understand how they affect the business’s value and stability.

In this post, we explain the importance of cybersecurity risk assessment and what cybersecurity due diligence should cover.

What is cybersecurity due diligence?

Cybersecurity due diligence is a structured review of a target company’s cybersecurity posture, including risk management, controls, incident history, and compliance, conducted during a transaction. The goal is to determine whether the target protects sensitive data, maintains stable business operations, and defends its critical assets against cyber threats.

The cybersecurity due diligence process includes, but is not limited to, reviewing the following:

• Cybersecurity risk management framework
• Internal security policies
• Risk assessment processes
• Incident management procedures
• Incident response plans

On the surface, cybersecurity due diligence seems similar to IT or technical due diligence. However, in practice, these processes are different:

• IT due diligence assesses the architecture, performance, scalability, and technical debt of systems and infrastructure. 
• Cybersecurity due diligence assesses how those assets are protected: control maturity, threat exposure, incident history, and resilience.

Read more: How to perform an IT audit for a small business?

How cyber risk impacts valuation and deal structure

Cybersecurity findings can affect deal valuation, deal structure and protections, including escrows, holdbacks, earn-outs, indemnities, and closing conditions. According to Reuters, “Undiscovered cyber risks can significantly diminish the value of the deal or, worse, lead to post-acquisition crises that more thorough due diligence might have prevented.”

Thorough cyber due diligence can be important to deal success. In fact, according to Forescout Technologies Inc., 53% of organizations reported a critical cybersecurity issue or incident during a M&A deal, and over 60% of organizations would consider cybersecurity before engaging with another company.

For buyers, including private equity firms, the findings from a cybersecurity review directly influence negotiations. Weak security controls, unclear incident-reporting mechanisms, or limited incident-response capabilities may signal deeper operational exposure and affect transactional outcomes. 

Common business implications include the following:

• Purchase price adjustments
  If due diligence reveals weaknesses in the company’s cybersecurity capabilities, buyers may negotiate a purchase-price reduction, escrow holdback, specific indemnity, additional representations and warranties, or cyber-specific insurance to address remediation costs and residual exposure.
• Escrow and indemnity clauses
  When there are unresolved risks, buyers may require that part of the deal value be held in escrow. These funds help cover future losses if previously undisclosed cyber issues or compliance problems appear after closing.
• Representations and warranties insurance
  Cyber findings influence how insurers evaluate transactional risks. If underwriting reveals major gaps in protection or governance, insurers may limit coverage, add exclusions, or raise premiums.
• Integration cost increases
  If the target lacks mature security monitoring tools such as SIEM, endpoint detection and response (EDR), incident response (IR) capability, or sufficient identity and access management, the buyer may reduce valuation or require a dedicated remediation budget, a closing condition, or a cyber-specific covenant to address the gaps during integration.
• Delayed closing
  Deals may slow if buyers need time to review cyber findings, validate remediation steps, or assess exposure under regulatory requirements. In some cases, buyers should also review the target’s third-party risk management (TPRM) program, including vendor inventories, data processing agreements (DPAs), supply-chain access, and any concentration risk in critical service providers.

What does a cybersecurity due diligence assessment cover?

Now, let’s look at the areas buyers should evaluate during cybersecurity due diligence to mitigate risks. 

Here’s an example of a cybersecurity due diligence checklist a buyer can follow when assessing a target.

Threat exposure and attack surface analysis

This step assesses the company’s visibility and vulnerability to external risks. Reviewers assess whether threat actors could readily identify and exploit vulnerabilities in the company’s external infrastructure.

Buyers look for the following:

• Publicly exposed assets such as company domains, servers, APIs, and cloud storage
  
• Known vulnerabilities identified through CVE records and the NIST National Vulnerability Database (NVD)
  
• Potentially outdated or unpatched software detected through external scans
  
• Security ratings from platforms like UpGuard, BitSight, or SecurityScorecard
  
• Evidence of leaked credentials in breach databases or through dark web monitoring tools

Data protection and sensitive asset review

This area focuses on how the company protects its most valuable information. Weak data protection exposes the business to legal penalties and reputational damage.

Buyers review the following:

• Protection of customer data, payment information, and intellectual property
• Encryption standards such as AES-256 for data at rest and TLS 1.2+ for data in transit
• Access management practices like role-based access control (RBAC) and multi-factor authentication (MFA)
• Security certifications, attestations, and compliance standards such as ISO/IEC 27001, SOC 2, and PCI DSS
• Data classification and retention policies

Incident history and breach disclosure review

Past incidents can reveal the company’s maturity and transparency in its security practices. This review helps determine how the organization handles real security events.

Buyers examine the following:

• Internal records of past cyber incidents or breaches
• Post-incident investigation reports and remediation actions
• Public breach disclosures or regulatory notifications
• Evidence of corrected vulnerabilities discovered in past incidents

Governance, policies, and security maturity

Cybersecurity also depends on leadership oversight and internal processes. Buyers assess whether management supports and clearly defines security responsibilities.

Typical review points include the following:

• Presence of a Chief Information Security Officer (CISO) or dedicated security leadership
• Board or executive oversight of cybersecurity risk
• Documented policies such as access control and incident response policies
• Alignment with frameworks like the NIST Cybersecurity Framework and standards such as ISO/IEC 27001
• Employee security awareness and phishing training programs

Third-party and supply chain risk

“Attackers have figured out that they don’t need to break through your carefully guarded front door when they can walk right in through your supplier’s back door with valid credentials,” said Nick Bradley of IBM’s X-Force Threat Intelligence Malware team.

Indeed, external vendors introduce additional cyber exposure. In fact, the State of Web Exposure 2026 report shows that 64% of third-party applications access sensitive data without justification.

This part of the review examines whether partners that access company systems maintain strong security practices.

Buyers evaluate the following:

• Critical third-party providers, including cloud providers such as AWS or Microsoft Azure and outsourced IT vendors
• Vendor security certifications, attestations, or assurance reports such as ISO/IEC 27001, SOC 2, or CSA STAR
• Security requirements included in vendor contracts
• Access permissions granted to vendors and partners
• Ongoing vendor security monitoring and assessments

When to conduct cybersecurity due diligence

Buyers often assess cyber risks in M&A at several points throughout the transaction to avoid surprises later.

• Pre-LOI screening
  At an early stage, buyers usually run a quick cyber check. This helps spot obvious problems, such as public vulnerabilities, leaked credentials, or a poor security posture, before serious negotiations begin.
• Confirmatory due diligence phase
  Once the deal moves forward, the buyer conducts a more comprehensive cybersecurity review. At this stage, teams analyze policies, past incidents, and the company’s approach to protecting its systems and data.
• Pre-close validation
  Shortly before closing, buyers confirm that no new security issues have arisen during the transaction. This step also checks whether the target has addressed previously identified issues.
• Post-acquisition cybersecurity remediation and integration plan
  After the deal closes, cybersecurity improvements are often part of the integration plan. The buyer may upgrade security tools, update policies, or remediate weaknesses identified during due diligence.

Key takeaways

• Cybersecurity due diligence helps buyers find hidden cyber risks before completing an acquisition.
• Weak security practices or cyber incidents identified during due diligence can reduce deal value, delay closing, or alter transaction terms.
• A proper review examines threat exposure, data protection, past incidents, governance practices, and vendor security.
• Buyers should assess and manage cyber risk at several stages of a deal, from early screening to post-acquisition integration.