When a company is being valued, buyers naturally look at the obvious stuff first. How much revenue does it generate? How fast is it growing? What are its margins? How strong is its customer base? What does the competitive landscape look like? Are there assets, intellectual property or other advantages that give the business staying power?
Then there is the less visible question of how much risk is sitting inside the technology that keeps the business running.
Increasingly, that question includes cybersecurity. A company can look healthy on paper and still have vulnerabilities that a buyer may have to spend significant time and money addressing. In other words, cybersecurity is no longer only about protecting a business from something that might happen – it can also be part of understanding what a business is worth.
A buyer is buying the risk as well as the business
Imagine two companies with broadly similar revenues, growth rates and customer bases.
One has well-managed systems, clear access controls, documented security processes, a good understanding of where its data sits and a history of dealing properly with vulnerabilities.
The other has legacy systems patched together over the years, unclear data ownership, weak controls, and security gaps that have never been properly addressed.
On paper, they might look very similar. From a buyer’s perspective, they aren’t.
This is one reason cybersecurity has become part of mergers and acquisitions (M&A) due diligence. Cyber risks can affect everything from intellectual property and customer information to operations, revenues, market value and brand reputation, making cyber due diligence an important part of assessing and pricing risk in transactions.
Previously hidden risks often become visible during the process of deciding what the business is worth. And once they’re visible, they have to be dealt with.
The cost isn’t necessarily the breach
It’s tempting to think of the financial impact of cybersecurity in terms of the aftermath of a major attack: downtime, lost customers, regulatory consequences, recovery costs and reputational damage. Those are certainly considerations, but they aren’t the only ones.
Suppose a buyer discovers that a target company’s security infrastructure needs significant remediation. Perhaps systems need replacing or upgrading. Perhaps data governance needs attention. Perhaps compliance gaps need to be addressed. Perhaps the buyer will need to invest heavily in security before integrating the business into its own environment.
Those costs don’t disappear because the acquisition has gone through – they become part of the economics of the deal.
Due diligence can identify security risks, liabilities and remediation costs that can inform negotiations and the expected return on the investment. That has implications for valuation, even when a company has never suffered a breach. A buyer may still have to factor in the cost of fixing weaknesses, strengthening controls or addressing risks that only become apparent during due diligence.
Why the Gulf’s digital economy amplifies tech risk
For businesses operating in the UAE and wider Gulf, this is becoming harder to ignore. The region has spent years investing in digital transformation, technology businesses and digitally enabled services. Dubai’s own Cyber Security Strategy is explicitly tied to strengthening digital infrastructure, accelerating digital transformation and supporting the emirate’s digital economy.
At the same time, technology is becoming a larger part of the region’s investment and M&A landscape. The more a company’s value depends on software, data, digital platforms and connected systems, the harder it becomes to separate technology risk from business risk.
A cybersecurity problem in a manufacturing business is one thing. In a fintech, e-commerce platform, software company or data-heavy service business, the technology may be much closer to the core of the asset being acquired.
Cybersecurity is becoming part of commercial due diligence
Cybersecurity used to be something that could largely be left to the IT department. In an acquisition, it is increasingly becoming a commercial question.
Investors need to assess not only growth prospects and technology assets, but also digital maturity and cyber risk before completing a transaction. Cyber vulnerabilities and integration problems can affect both top-line growth and bottom-line value.
The question isn’t simply, “Has this company ever been hacked?” It is more likely to be something closer to: “What are we actually inheriting here?” That could include vulnerable infrastructure, poorly protected intellectual property, unresolved incidents, inadequate data controls, regulatory exposure or systems that will be expensive to integrate. And if the answer is unclear, uncertainty itself becomes a problem.
Security weaknesses can affect the deal before anything goes wrong
Cybersecurity can affect a transaction without anyone having suffered a catastrophic cyberattack. A buyer carrying out due diligence may simply discover that the target’s security maturity isn’t where it needs to be.
That could lead to further investigation, requests for remediation before completion, changes to the transaction terms, protections for the buyer, or an adjustment to the deal economics.
Cybersecurity due diligence can uncover risks and remediation costs that then become part of the negotiation. It’s important to identify and quantify the one-off vs recurring costs associated with cyber vulnerabilities and compliance gaps.
So, the financial consequence of poor cybersecurity may not appear as a dramatic line item called “cyberattack”. It may be as simple as a buyer asking more questions, spending more on diligence, negotiating harder or factoring future remediation into what they are prepared to pay.
Good cybersecurity doesn’t create value by itself – it helps protect it
There is a danger in taking this argument too far. Cybersecurity isn’t a magic ingredient that automatically increases a company’s valuation. Nor does having an impressive security programme make a weak business attractive to investors. Its value is more practical.
Good cybersecurity reduces uncertainty around an increasingly important part of the business. It gives buyers greater confidence that the systems supporting the company’s customers, operations, data and intellectual property are understood and appropriately protected. That becomes particularly important when a company is preparing for investment or a potential sale.
The time to discover a security weakness is before a buyer does. That doesn’t mean businesses need to have perfect cybersecurity. Few do. It means they should understand their exposure, know where their important data and systems are, address material weaknesses and be able to explain what they are doing about cyber risk.
A buyer evaluating a company tomorrow will want to know exactly what comes with it. In a digital economy, much of that value – and risk – is difficult to spot on a balance sheet. That’s why cybersecurity deserves a place in the valuation conversation, long before the sale process begins.
