Private equity (PE) firms managing a diverse group of portfolio companies face amplified cybersecurity challenges due to each company’s unique risks and vulnerabilities. TechMD’s Brian Hanify, Chief Revenue Officer, and David D’Agostino, VP of Cybersecurity, recently joined Sebastian Igreti for an in-depth discussion of key cybersecurity considerations for PE firms seeking to make informed acquisition decisions and address complex cybersecurity risks.
The main goals of successful PE firms are to make informed acquisition decisions, protect their investments, and enhance the overall value of their portfolio. Cybersecurity considerations, often overlooked during the acquisition process, can significantly impact value creation. Here are five key cybersecurity considerations for PE firms and their portcos:
1. Conduct cybersecurity assessments during acquisitions
When acquiring a new portfolio company, understanding its cybersecurity posture is equally important to assessing its financial health. Conducting a comprehensive cybersecurity assessment during the early stages of acquisition, ideally during the Letter of Intent (LOI) phase, helps identify existing security vulnerabilities and technical debt. According to Hanify, cybersecurity risk is a form of technical debt, encompassing long-term maintenance challenges due to technical shortcuts taken to meet short-term goals. Understanding these risks is an important component of a portfolio company’s overall value proposition.
2. Understand cybersecurity risks hidden in legacy infrastructure
Legacy infrastructure often presents significant cybersecurity risks, particularly in companies that have been operating for many years without regular updates. D’Agostino emphasized the importance of conducting high-level IT audits to uncover “open doors and windows” in a company’s infrastructure. These audits focus on fundamental security checks that will require future investment to rectify, such as identifying outdated accounts, open firewall ports, and other critical vulnerabilities that could be exploited by cybercriminals.
3. Balance immediate security needs with long-term strategic planning
Once security gaps are identified, the next challenge is balancing immediate remediation efforts with long-term strategic goals. Private equity firms typically seek to create value quickly, and cybersecurity investments must align with this objective. TechMD’s approach is to prioritize the highest risk issues first, working closely with portcos to minimize risk while staying within budgetary constraints. As Hanify notes, “There is no way to take 100% of the risk out,” but the goal is to reduce it to the lowest possible level based on industry and operational factors.
4. Implement scalable and transparent cybersecurity solutions
Since growth is paramount for private equity firms, portfolio companies require scalable cybersecurity solutions that adapt to evolving needs, like those offered by TechMD. Their enterprise-level solutions are designed to be both transparent and non-disruptive, allowing businesses to seamlessly deliver products and services to customers. D’Agostino emphasizes the importance of a “defense in depth” approach, which combines people, processes, and technology to create a robust security framework.
Learn more: Strategic IT Partnerships for Private Equity Portfolio Growth
5. Build a cybersecurity roadmap
The first step to building and implementing a scalable cybersecurity plan is to understand the industry-specific risks and determine the enterprise’s risk tolerance. From there, the portco can develop a baseline and gradually work towards aligning with a comprehensive cybersecurity framework. D’Agostino advises focusing on “basic hygiene” first—implementing effective security measures that can be built upon over time.
More cybersecurity resources for private equity firms and portfolio companies
As the cybersecurity landscape becomes increasingly complex, private equity firms must be vigilant in protecting their investments. By conducting thorough cybersecurity assessments, addressing legacy infrastructure risks, and implementing scalable, transparent security solutions, PE firms can significantly reduce their exposure to cyber threats on behalf of their portfolio companies.
For best-in-class technology solutions that empower private equity firms and their portfolio companies to scale seamlessly, accelerate profits, and drive operational efficiency, contact TechMD today.
