When companies acquire businesses in foreign countries or expand their existing businesses internationally, they may encounter numerous challenges. In this three-part series, our professionals from Forvis Mazars highlight issues that such companies should consider. This third installment focuses on data privacy and cybersecurity.
Data Privacy & Cybersecurity: Issues & Risks
International expansion introduces significant data privacy and cybersecurity challenges. Companies must address these risks comprehensively during due diligence and throughout the integration process to help ensure successful outcomes and compliance with global standards.
Here are six issues to consider:
- Enhanced Due Diligence for Data Privacy & Cybersecurity
Before finalizing a merger and acquisition (M&A) transaction, it is important to conduct thorough due diligence on the target organization’s data privacy and cybersecurity practices. This involves looking at:
- Regulatory Compliance: Confirm whether the target company complies with international and local data protection laws such as the General Data Protection Regulation (GDPR), California Consumer Privacy Act (CCPA), or country-specific regulations, e.g., China’s Cybersecurity Law. Noncompliance could result in penalties that the acquiring company may inherit.
- Existing Risks: Gauge the target company’s history of data breaches, unresolved vulnerabilities, or ongoing investigations by regulatory authorities.
- Data Assets: Identify the types and volumes of data held by the target company, including customer, employee, and intellectual property data. This helps ensure proper handling of sensitive information post-acquisition.
Perform cybersecurity audits and data privacy assessments, as this is crucial to help identify potential liabilities and prepare a risk mitigation strategy.
- Integration of Systems & Platforms
Disparate systems, outdated technologies, or inconsistent security measures can create vulnerabilities during and after integration, and the post-acquisition integration of IT and cybersecurity systems poses significant risks.
Key steps to adequately integrate systems include:
- Infrastructure Compatibility: Look at the compatibility of the target company’s cybersecurity infrastructure with the acquirer’s systems. Standardize security protocols and tools across both organizations to help streamline operations.
- Data Migration & Encryption: Have secure data migration processes using encryption and other protective measures to help prevent unauthorized access during the transition.
- Access Management: Go over and revise access controls, eliminating redundant accounts and helping to ensure that only authorized personnel have access to sensitive data.
- Legal & Regulatory Challenges
Address data sovereignty laws that govern where and how data can be stored and transferred. Key considerations include:
- Cross-Border Data Transfers: Identify any data transfers that may violate local laws and utilize mechanisms such as standard contractual clauses (SCCs) or binding corporate rules (BCRs) to help ensure compliance.
- Legacy Liabilities: Assume responsibility for pre-existing regulatory violations of the target company. Understanding these liabilities is essential for risk assessment and cost forecasting.
- Cultural & Organizational Alignment
Cultural differences in attitudes toward data privacy and cybersecurity may exist between the acquiring and target companies. Aligning policies, procedures, and employee training across both organizations is critical. Key actions include:
- Training Programs: Provide comprehensive training to employees of the acquired company to align with the acquiring company’s data privacy and cybersecurity standards.
- Policy Harmonization: Standardize privacy policies and procedures to meet both local and international compliance requirements.
- Proactive Cybersecurity Risk Management
Threat actors often exploit transitions to target sensitive data or disrupt operations. Help mitigate these risks with:
- Enhanced Monitoring: Deploy advanced threat detection and monitoring tools to help identify and mitigate potential cyberattacks during the M&A process.
- Incident Response Plans: Develop and employ a robust incident response plan that includes protocols for cross-border collaborations and regulatory reporting requirements.
- Reputation Management Post-Acquisition
The integration of two organizations’ data and systems can lead to mismanagement or breaches that damage the parent company’s reputation. To help safeguard trust, have:
- Transparent Communication: Inform stakeholders, including customers and regulators, about the measures being taken to protect data and align practices.
- Audit & Review: Conduct periodic audits post-acquisition to help ensure continued compliance and robust cybersecurity practices.
Conclusion
Expanding internationally through M&A magnifies the complexity of data privacy and cybersecurity risks. Addressing these challenges requires an extensive strategy encompassing due diligence, regulatory compliance, secure integration, and proactive risk management. By prioritizing these issues, companies may reduce liabilities, protect sensitive data, and build a foundation for successful international growth.
For more issues to consider, read the first part of our series on tax structuring and the second part on environmental, social, and governance (ESG) requirements and financial reporting. If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.
Useful links to privacy laws per country