Cybersecurity risk is essential for businesses of all sizes and industries, particularly during the deal lifecycle. Investors have observed that value can diminish significantly after an acquisition target experiences a breach. The increasing volume and complexity of data, along with sophisticated threat actors, make it vital to assess cybersecurity risks before closing a deal. Including cybersecurity in the due diligence process can reveal potential risks and necessary investments that impact overall valuation.

A cyber breach can have lasting effects on a company's valuation, impacting profitability and investor confidence. For instance, the 2021 data breach of LastPass exposed sensitive user information, which likely diminished its valuation. Additionally, breaches can lead to legal consequences and regulatory scrutiny, further affecting a company's financial standing and potential returns for investors.

Private equity firms should adopt several best practices to manage cybersecurity risks effectively. This includes conducting thorough due diligence on the target company's cybersecurity measures, assessing IT infrastructure, and understanding incident response plans. Establishing clear responsibilities for data protection and incorporating cybersecurity considerations into post-acquisition strategies can help safeguard the value of the investment and ensure compliance with regulatory requirements.