Key Takeaways
- • Cybersecurity has become a critical investment diligence factor for private equity firms across deal structuring, valuation, value creation strategy, and exit planning, according to EY-Parthenon's client research.
- • Ransomware actors are actively targeting PE-backed companies during M&A activity—the FBI warned that cybercrime groups are using significant financial events, including mergers and acquisitions, for reconnaissance and ransomware deployment, creating elevated risk during high-volume PE transaction periods.
- • Midsize companies with PE ownership are prime targets—The Wall Street Journal reported in March 2022 that hackers have shifted focus to midsize companies in the process of being acquired by well-capitalized private equity firms, viewing PE backing as a financial vulnerability to exploit.
- • Mature, fund-led cybersecurity programs can enhance deal competitiveness and value creation—beyond risk mitigation, proactive cybersecurity strategies position PE funds to increase competitive advantage and drive portfolio company innovation.
Summary
Private equity cybersecurity has emerged as a material concern for fund managers conducting investment due diligence and managing portfolio companies. According to EY-Parthenon's research, cybersecurity strategy is now critical across the full investment lifecycle: from initial investment diligence through deal announcements, value creation execution, and eventual exit.
The threat landscape has intensified significantly. Cybercrime actors have increasingly identified private equity as an attractive target given the sector's high transaction velocity and portfolio companies' variable security postures. The Federal Bureau of Investigation issued a formal bulletin cautioning the private sector that ransomware actors are "highly likely" to leverage significant financial events—including M&A activity—as opportunities for reconnaissance and ransomware deployment. For PE firms managing substantial acquisition and divestiture pipelines, this represents an outsized vulnerability during periods of heightened transaction activity.
Criminal actors have explicitly adapted their targeting strategies around PE ownership dynamics. The Wall Street Journal reported in March 2022 that hackers have begun focusing on midsize companies that either currently have or are about to acquire deep-pocketed PE owners. This represents a deliberate shift in threat actor methodology, with cybercriminals viewing PE-backed targets as potential sources of substantial ransom payments or business disruption leverage.
EY-Parthenon's client interviews identified that funds confronting cyber threats have discovered opportunities to embed cybersecurity as an active value creation lever rather than treating it purely as a compliance or risk management function. A mature, fund-led cybersecurity program can simultaneously reduce operational risk and enhance a fund's competitive positioning by demonstrating superior governance, reducing portfolio company downtime, and improving operational resilience—factors that increasingly influence deal valuations and exit multiples.
The threat landscape has intensified significantly. Cybercrime actors have increasingly identified private equity as an attractive target given the sector's high transaction velocity and portfolio companies' variable security postures. The Federal Bureau of Investigation issued a formal bulletin cautioning the private sector that ransomware actors are "highly likely" to leverage significant financial events—including M&A activity—as opportunities for reconnaissance and ransomware deployment. For PE firms managing substantial acquisition and divestiture pipelines, this represents an outsized vulnerability during periods of heightened transaction activity.
Criminal actors have explicitly adapted their targeting strategies around PE ownership dynamics. The Wall Street Journal reported in March 2022 that hackers have begun focusing on midsize companies that either currently have or are about to acquire deep-pocketed PE owners. This represents a deliberate shift in threat actor methodology, with cybercriminals viewing PE-backed targets as potential sources of substantial ransom payments or business disruption leverage.
EY-Parthenon's client interviews identified that funds confronting cyber threats have discovered opportunities to embed cybersecurity as an active value creation lever rather than treating it purely as a compliance or risk management function. A mature, fund-led cybersecurity program can simultaneously reduce operational risk and enhance a fund's competitive positioning by demonstrating superior governance, reducing portfolio company downtime, and improving operational resilience—factors that increasingly influence deal valuations and exit multiples.
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