What cybersecurity practices and controls should be verified (encryption, access management, incident response)?

Technology assets can determine the success or failure of a merger or acquisition (M&A). In today's landscape, a comprehensive evaluation of a target company's technological aspects is no longer just a best practice—it's a critical necessity. This deep dive, known as Technical Due Diligence (TDD), extends beyond mere infrastructure to encompass software systems, intellectual property, and, crucially, cybersecurity measures. It’s about uncovering hidden risks that could jeopardize post-transaction operations and ensuring the system aligns with strategic goals. Let's break down the core cybersecurity practices and controls that demand rigorous verification during any due diligence process.

Encryption – Safeguarding Your Data

Data encryption is a paramount cybersecurity practice, transforming sensitive data into an unreadable format for unauthorized users. It serves as a vital safeguard for personal and financial information, crucially maintaining the integrity and confidentiality of an organization’s data, particularly amidst digital transformation. For any business, especially those handling sensitive customer or intellectual property data, verifying robust encryption standards is non-negotiable.

During due diligence, our focus is on ensuring that all sensitive data is encrypted, both at rest and in transit. This includes examining not just the presence of encryption protocols, but also their effectiveness and compliance with industry standards and regulations. Non-compliance with standards like GDPR or HIPAA due to inadequate data protection can lead to severe penalties and reputational damage. Therefore, a thorough review of data protection and privacy policies is essential to mitigate these risks.

Access Management – Controlling the Gates

Controlling who has access to what, and under what conditions, is fundamental to cybersecurity. Strong access control policies are vital to ensure that only authorized individuals can access sensitive information. This involves not only strict authentication measures but also assigning proper access privileges and regularly reviewing permissions to prevent unauthorized data exposure.

Key areas for verification include:

• Multi-Factor Authentication (MFA): Requiring users to present two distinct forms of identification, such as a password combined with a mobile device, significantly reduces the risk of unauthorized access. This dual approach enhances user trust and verifies identities more effectively.

• Role-Based Access (RBA): Ensuring that access privileges are assigned based on an individual's role and need-to-know, adhering to the principle of least privilege. This minimizes the potential attack surface by limiting access to only essential personnel.

• Regular Review of Access Controls: Continuous assessment of access rights is crucial to adapt to evolving threats and maintain security posture.

Incident Response – Prepared for the Unthinkable

No organization can be 100% secure. Therefore, a robust cybersecurity incident response plan is not just beneficial, it's essential for minimizing the impact of potential breaches. Incident response is a strategic approach to identify an incident and minimize its impact before it causes too much damage. It covers everything from detecting and investigating an incident to recovering from its impact.

The incident response lifecycle, as per the National Institute of Standards and Technology (NIST), typically includes six main phases:

1. Preparation: This foundational phase involves understanding threats, developing an Incident Response Plan (IRP) with defined roles, responsibilities, communication channels, and tools. Regular training and testing of implementations are critical.

2. Detection and Analysis: Identifying incidents, distinguishing true positives from false positives, and understanding the extent and scope of impact.

3. Containment: Taking immediate steps to stop the attack and prevent its spread, while preserving evidence for further investigation.

4. Eradication: Identifying and removing the root cause of the incident, such as malware, updating security software, fixing vulnerabilities, and hardening infrastructure.

5. Recovery: Restoring impacted components to normal operational status, including data restoration from secure backups.

6. Lessons Learned: Documenting the entire incident, identifying what worked well and what needs improvement, to enhance the overall security posture and refine the IRP for future incidents.

During due diligence, verifying the existence and effectiveness of an incident response plan is critical. This includes checking for regular drills and updates to the plan, ensuring adaptability to new threats.

Broader Cybersecurity Practices in Due Diligence

Beyond these core areas, a comprehensive cybersecurity assessment during due diligence also involves a broader set of practices:

• Security Audits and Vulnerability Assessments: These are crucial for identifying potential threats and vulnerabilities within the system. This includes penetration testing, which simulates attacks to uncover weaknesses. Regular audits and assessments are essential for continuous compliance and risk identification.

• Security Code Review Tools: Implementing tools like Static Application Security Testing (SAST) and Dynamic Application Security Testing (DAST) is a proactive way to identify and resolve security vulnerabilities early in the Software Development Life Cycle (SDLC). These tools scan source code and applications for issues like SQL injection and cross-site scripting (XSS) before they impact the business.

• Software Composition Analysis (SCA) tools are also critical for analyzing open-source dependencies and libraries for known vulnerabilities and license compliance issues.

• Compliance with Regulations: Ensuring adherence to relevant tech-related laws and regulations is paramount. This involves compliance with standards such as GDPR, HIPAA, PCI DSS, SOC 2, ISO 27001, and NIST Cybersecurity Framework, which dictate how sensitive data is handled and protected.

In essence, cybersecurity due diligence is a continuous process of vigilant assessment and adaptation. By rigorously verifying these practices—from encryption and access management to a well-defined incident response and continuous vulnerability detection—businesses can significantly mitigate risks, bolster trust, and ensure their investments are built on a foundation of secure, resilient technology.