Cybersecurity Due Diligence: The New-ish Hidden Deal Killer in Business Sales
For years, buyers evaluating a business focused on financials, contracts, tax exposure, and pending litigation. Today, another category has moved to the top of the diligence stack and it is fully capable of killing a deal at the eleventh hour: cybersecurity.¹
Cyber risk is no longer treated as a technical detail to be delegated and forgotten, but a balance sheet issue, regulatory issue, and increasingly, a valuation issue that buyers price into every offer.²
For brokers preparing a company for sale, cybersecurity due diligence has become one of the most underestimated variables in the transaction process. In many deals, it is not revenue performance that derails closing. It’s what the buyer uncovers about how the seller handled data security.
Why buyers now ask cybersecurity questions
Modern businesses are data businesses, even when they still think of themselves as traditional operations. Customer records, payment data, HR files, vendor portals, cloud platforms, and third-party integrations all expand a company’s digital exposure.³
Regulators expect organizations to implement reasonable cybersecurity controls, and enforcement actions increasingly focus on governance failures and weak oversight rather than isolated technical incidents.⁴ Buyers understand that when they acquire a company, they inherit its cyber exposure, regulatory history, and any latent liabilities tied to data practices.
As a result, cybersecurity questionnaires are now standard in serious M&A processes. Buyers routinely ask:
- Has the company experienced a data breach?
- Are backups tested and recoverable?
- Is multi factor authentication enforced?
- Are there documented cybersecurity policies?
- Has the company undergone any security audits?
Red flags that kill deals
Certain cybersecurity weaknesses consistently stall deals, for example:
- Undisclosed or poorly handled breaches: If a prior breach was not properly investigated, documented, or disclosed, buyers assume hidden exposure and unresolved risk.
- No reliable backups: An inability to demonstrate regular, tested backup and recovery procedures signals operational fragility. In ransomware scenarios, companies without viable backups often face prolonged shutdowns and significant financial loss.⁶
- Outdated or unsupported systems: Legacy applications and unsupported operating systems signal unpatched vulnerabilities and future remediation costs.
- No written policies or governance framework: The absence of documented cybersecurity procedures suggests the company may not meet emerging regulatory expectations around governance and accountability.
A practical cybersecurity checklist for brokers
Before bringing a company to market, brokers can reduce transaction risk by confirming a few foundational controls that buyers increasingly treat as baseline indicators of operational maturity:
- Multi factor authentication enabled on email and key systems
- Regular, tested backups stored separately from production environments
- Written cybersecurity and incident response policies
- An inventory of third party vendors with access to sensitive data
- Documentation of prior security incidents and remediation steps
- Confirmation that critical software is supported and updated
How weak cybersecurity impacts valuation
Cybersecurity exposure affects value in several ways. Buyers may reduce purchase price to account for anticipated remediation, including system upgrades, audits, and outside consultants. They may demand escrow holdbacks, broader indemnities, or expanded representations and warranties if they perceive unresolved cyber risk. In serious cases, deficiencies can reshape deal structure or cause buyers to walk away entirely.
As litigation and regulatory scrutiny expand, courts increasingly examine whether organizations exercised reasonable care in safeguarding digital assets. That scrutiny does not disappear at closing. It transfers with the business.
The hidden deal variable
Cybersecurity due diligence is no longer a niche concern reserved for technology companies. It influences transactions across manufacturing, healthcare, retail, professional services, and small businesses that once assumed they were too small to be targets.
For brokers, the takeaway is straightforward. Cybersecurity readiness is part of modern deal preparation. Identifying weaknesses before buyers do preserves leverage, protects valuation, and reduces the risk of last minute disruption.
In 2026, the question is no longer whether cybersecurity matters. It is whether the work has already been done before a buyer begins asking!
Sources
- Liberty Mutual, New Developments in Law Firms’ Obligations to Protect Against Data Breaches
https://business.libertymutual.com/insights/new-developments-in-law-firms-obligations-to-protect-against-data-breaches/ - Duane Morris LLP, Gen AI Class Action Key Decisions and Trends in 2025
https://www.duanemorris.com/articles/gen_ai_class_action_key_decisions_trends_2025_1125.html - White & Case, Automated Decision Making Emerges as an Early Target of State AI Regulation
https://www.whitecase.com/insight-alert/automated-decision-making-emerges-early-target-state-ai-regulation - National Conference of State Legislatures (NCSL), Summary of Artificial Intelligence 2025 Legislation
https://www.ncsl.org/technology-and-communication/artificial-intelligence-2025-legislation - National Law Review, Artificial Intelligence Legislative Update
https://natlawreview.com/article/artificial-intelligence-legislative-update - Reuters, Old Laws, New Tech: The Massive Litigation Poised to Define 2026
https://www.reuters.com/legal/government/old-laws-new-tech-massive-litigation-poised-define-2026-2026-01-05/