The Importance of Regular Cyber Risk Assessments for Private Equity Portfolios

Private Equity (PE) investors face rising risks of cyberattacks on Portfolio Companies (PortCos), which can wipe out returns or even make a business unviable. How can investors and management teams collaborate to prevent cyber risks from becoming costly setbacks?

A recent report from Accenture reveals that 68% of companies experience an increase in cyber incidents during deal closures. This trend highlights a period of heightened vulnerability for both acquirer and the acquisition. For frequent acquirers, proactively addressing these risks is essential to protect investment value and operational stability.

The good news? While cyber security can be complex, it doesn’t have to be. With the right cyber security protocols in place, many breaches are preventable. Regular risk assessments are a proactive move. They enable PE firms to identify vulnerabilities and close cyber gaps in PortCos, thereby securing long-term portfolio value.

What is a Cyber Risk Assessment, and Why is it Important?
Cyber risk assessments are more than just a checkbox; they identify specific vulnerabilities a company faces and outline practical steps for securing digital assets. Beyond compliance, these assessments are a strategic tool that can differentiate your firm in a competitive market.

By proactively addressing vulnerabilities, PE firms can enhance their reputation among investors and potential buyers. A robust cyber security posture signals to stakeholders that the firm is committed to protecting assets and preserving value, ultimately leading to better investment outcomes and increased buyer confidence during exits. Incorporate cyber risk assessments into your operations to establish robust protection throughout the investment lifecycle. Every stage, from due diligence to exit, benefits from this proactive approach.

Due Diligence
Conducting a cyber risk assessment during due diligence is a game-changer. It offers critical clarity on a target company’s cyber security posture. This insight allows investors to identify vulnerabilities and address risks directly, protecting long-term value.

Announcement
In the post-acquisition phase, aligning cyber security priorities with PortCo leaders becomes key. A cyber risk assessment at this stage identifies immediate security gaps. This ensures that both leadership and security teams are prepared to implement essential protections against potential threats.

Value Creation
Ongoing cyber assessments during ownership are transformative. They allow PE firms to monitor and adapt their cyber security strategies continuously. By strengthening defences and addressing new risks proactively, this approach drives lasting value across their portfolio.

Exit
When it comes time to sell, a strong cyber security track record enhances a company’s appeal to buyers. Documented risk assessments not only showcase resilience but also highlight proactive risk management strategies. This commitment to protecting investments signals to potential buyers that your firm values security and stability.

How to Complete a Cyber Risk Assessment
Now that we have discussed the why of cyber risk assessments, let’s explore the how. Here’s a straightforward approach to evaluating your cyber posture:

Define the Assessment Scope and Identify Vulnerabilities
Begin by identifying the specific areas within your firm that require the most attention, focusing initially on high-risk areas. Clearly communicate the assessment’s purpose and scope to key stakeholders to secure their support and commitment to the process.

Next, understand your portfolio’s vulnerabilities by identifying key assets including sensitive data, critical systems and intellectual property. Create a simple diagram to visualise the connections between assets. This helps you to pinpoint potential weaknesses and allocate security resources effectively.

Evaluate Risks and Potential Impact
After identifying your key assets and vulnerabilities, assess the potential impact of a cyberattack. Consider the following factors:

• Likelihood of an Attack: How probable is it that a cyber threat could target your organisation?
• Severity of Potential Consequences: What would be the extent of damage if an attack were successful?
• Potential Risks: What financial losses, operational disruptions or reputational damage could result from a breach?

Prioritise Risks and Mitigation Strategies
Next, prioritise risks based on their potential impact and likelihood. Focus on addressing the highest-priority risks first. Consider these strategies:

• Risk Avoidance: Eliminate the high-risk activities and processes
• Risk Transfer: Transfer risk to third-party providers through insurance or outsourcing
• Risk Mitigation: Implement security controls to reduce the likelihood and impact of risks

Develop and Implement Risk Management Plans
Create a clear risk management plan that outlines specific actions, timelines and responsibilities to address identified risks. This plan should include;

• Implement Security Controls: Deploy comprehensive measures like firewalls, zero trust and advanced threat detection to protect critical assets
• Employee Training: Provide regular security awareness training to promote a culture of security and reduce the risk of human error
• Incident Response (IR) Planning: Develop a robust IR plan to effectively respond and recover from cyberattacks

Continuous Improvement
Once your security controls are in place, continuous monitoring is essential to ensure their effectiveness. Regular reviews are crucial for adapting to evolving threats and ensuring your strategies remain relevant. Schedule periodic reassessments to identify new vulnerabilities and maintain robust security measures.

Cyber Risk Management as a Strategic Asset
At a time when economic challenges already affect growth, a cyberattack can devastate exit returns. Beyond financial setbacks, a breach can trigger immediate operational and reputational harm, posing a greater threat to your investments than many realise. Taking proactive steps to manage cyber risk is essential – not just as a precaution, but as a strategic advantage. Integrating cyber risk assessments into your investment lifecycle offers multiple benefits. It helps protect portfolio value while enhancing your firm’s reputation. Most importantly, it increases investor confidence.

Proactive Cyber Assessments with External Expertise
Conducting a thorough cyber risk assessment requires specialised knowledge and significant time investment, often stretching in-house capabilities. Partnering with cyber security providers like OneCollab can simplify the process, offering expertise to identify vulnerabilities and prioritise risks effectively across the portfolio.

With an experienced cyber security partner, PE firms can gain clear insights into their “cyber health” and allocate resources more efficiently. Working with OneCollab, firms benefit from:

• Streamlined Process: Our experts handle the technical complexities, allowing firms to keep focus on strategic goals
• Achieve Compliance: Understand your current standing against key regulations and standards, helping you avoid financial penalties
• Reduce Risks: Gain clear and actionable insights into security threats across your portfolio, addressing vulnerabilities before they escalate
• Fast Implementation: Quickly enhance your security posture with our fast and effective process, ensuring maximum protection

Ready to take the next step?

Contact us today to learn how our cyber health check can help you protect your investments and strengthen your competitive position.