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PE Firms Are Mandating Portfolio Cyber Measures during Evaluation

By Cybersecurity Group

Mergers & Acquisitions

Even PE firms with a light touch approach are mandating portfolio cyber measures.

The relationship between PE firms and portfolio companies is delicate. General Partners (GPs) often have strong operational experience, something that translates into detailed thought on how to run the businesses they own. But strong managers don’t want to be micro-managed. To attract and retain top talent, funds, therefore, aim to be additive vs directive.

With the frequency and cost of security breaches continuing to rise, we’ve noticed that many private equity firms are taking an increasingly active posture toward security. Twelve months ago, we often heard, “How can we view security risk across our portfolio” and “What’s the best way to talk about cyber risk at a board level?” Today, as PE firms find security vendors they trust, they are beginning to mandate elements of portfolio firms’ cyber programs. The scope of these activities range from cyber-insurance coordinated at a PE fund level (e.g. via McGriff) to mandated penetration tests, security audits and external scans with pre-approved vendors. An article from Crains New York highlights this by saying “For private equity firms, taking a proactive stance on cybersecurity can strengthen investor confidence.  It can also help them attract new investors and increase their competitive advantage.”

In the near future, we anticipate higher adoption of passive tools that provide PE firms with cross-portfolio visibility into firms’ real-time security posture. According to the Wall Street Journal, “The fear of cyberattacks, coupled with regulations such as New York state rules requiring financial firms to assess and manage cyber risks, has pushed security to the fore among senior executives and board members in recent years.”

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By Cybersecurity Group