Decoding the Complex Landscape of Application Security in Mergers and Acquisitions (M&A)

In the rapidly moving world of corporate strategy, mergers and acquisitions (M&A) have become a common path for companies seeking growth, market expansion, and competitive advantage. However, as these companies join hands, they face quite a few challenges – and one of the most critical yet often overlooked aspects is Application Security.

This blog will dive into the intricate relationship between M&A activities and application security programs. We'll explore why application security is crucial in M&A, AppSec lifecycle in M&A and the challenges we face while navigating this complex landscape.
‍

Why Application Security Matters in M&A

1. Inherited Vulnerabilities: When Company A acquires Company B, it doesn't just acquire its assets and customer base – it also inherits all of Company B's applications, along with any existing vulnerabilities.

2. Expanded Attack Surface: The merger of two companies often results in a significantly larger and more complex IT infrastructure, expanding the potential attack surface for cyber-attacks.

3. Regulatory Compliance: Different companies may be subject to different regulatory requirements. When the merger happens, the new entity must ensure compliance across all its applications, which can be a complex task.

4. Brand Reputation: Security breaches can severely damage brand reputation. In the wake of an M&A, when public attention is already heightened, a security incident can be particularly damaging.

5. Financial Implications: Discovering major security flaws post-merger can lead to significant unexpected costs, potentially undermining the financial benefits of the M&A.
‍

The M&A Application Security Lifecycle

1. Pre-Merger: Due Diligence and Assessment

a) Application Inventory

• Check the inventory of all applications in both organizations
• Categorize applications based on criticality, data sensitivity, and user base
• Document technology stacks, frameworks, and third-party components

b) Security Posture Assessment

• Perform in-depth security assessments of critical applications
• Utilize a combination of automated scanning tools and manual penetration testing
• Assess the maturity of existing application security practices in both organizations

c) Compliance Audit

• Identify all relevant regulatory requirements (e.g., GDPR, HIPAA, PCI-DSS)
• Assess current compliance status of applications
• Document any gaps or non-compliance issues

d) Risk Analysis

• Conduct a thorough risk assessment for critical applications first
• Consider factors such as data sensitivity, potential impact of a breach, and likelihood of attack
• Create a risk map to visualize and prioritize security concerns
  ‍

2. During Merger: Integration Planning and Execution

a) Policy and Standards Alignment

• Compare existing application security policies and standards
• Identify discrepancies and best practices from each organization
• Develop a unified set of application security policies and standards

b) Tool and Process Integration

• Evaluate existing security tools (e.g., SAST, DAST, SCA) from both organizations
• Select the best-fit tools for the merged entity, considering factors like coverage, ease of use, cost and integration capabilities
• Develop a plan for tool consolidation and data migration

c) SDLC Integration

• Analyse the software development lifecycles of both organizations
• Design an integrated SDLC that incorporates the best security practices from both organizations

d) Team Structure and Responsibilities

• Assess the current application security team structures
• Define roles and responsibilities for the team to functionality efficiently
  ‍

3. Post-Merger: Operationalization and Continuous Improvement

a) Implementation of Integrated Security Program

• Roll out the new, unified application security policies and standards
• Implement the integrated SDLC across all development teams
• Deploy and configure selected security tools across the merged application landscape

b) Training and Awareness

• Develop a comprehensive security awareness program for all employees
• Provide specialized training for developers, testers, and other IT staff on the new security practices and tools

c) Third-Party Risk Management

• Create an inventory of all third-party components and services used in applications
• Implement a process for assessing and monitoring third-party security risks
• Develop strategies for reducing reliance on high-risk third-party components

d) Continuous Improvement

• Regularly review and update security policies and practices
• Stay informed about emerging threats and evolving best practices
• Continuously assess the effectiveness of security controls and make necessary adjustments
  ‍

‍

‍Challenges 

1. Cultural Differences: Different security cultures can lead to resistance or inconsistent adoption of new practices.

2. Resource Constraints: M&A activities often strain resources, potentially leaving security understaffed or underfunded.

3. Complex Integrations: New Integrations can often introduce new vulnerabilities.

4. Data Protection:  Ensuring consistent data protection across newly combined systems can be complex when the inventory increases.
‍

Conclusion

Application security in the context of mergers and acquisitions is a complex but critical consideration. By approaching it systematically - from detailed due diligence, through careful integration planning, to ongoing improvement - organizations can minimize risks and maximize the value of their M&A activities.

The goal is not just to merge businesses, but to have a unified, secure foundation for future growth. In today's digital landscape, robust application security is not just a technical necessity - it's a business requirement.