November 30, 2023 Blogs 9 min read

When cyber health is wealth: How to safeguard your private equity investments in the ransomware age


Blog pic

Despite a prediction of a significant reduction in ransomware attacks in 2023, these threats are far from disappearing. In fact, they’ve surged, posing significant risks to organisations, including those in the private equity realm. When invested in by private equity firms, companies find themselves thrust into the spotlight, attracting the unwanted attention of cyber criminals as soon as news of the acquisitions hits the wires.

To find out why, we invite you to delve into our latest blog, where we’ll uncover why your portfolio companies (portcos) are at risk of being afflicted by ransomware, while also equipping you with practical steps and expert insights to help your investments take control of their cyber risk to prevent the worst from happening.

Why the risk may be higher than your realise

Ransomware is a malicious software that infiltrates a computer system or network, encrypts valuable data, and holds it hostage until a ransom is paid. These attacks can paralyse organisations, disrupt operations, and cause significant financial and reputational damage. The term “ransomware” comes from the fact that the attackers demand a ransom from the victim, whether it’s an individual or an organisation, in exchange for providing the decryption key or tool to unlock the encrypted data. Such ransomware attacks are a concern for any organisation today, and your portcos are no exception. These businesses, which often operate behind the scenes of the corporate world, might not initially seem like the most lucrative prey for cyber criminals. However, a closer look reveals a perfect storm of factors that make them hot targets.

First and foremost, just like other modern businesses private equity portcos manage a treasure trove of sensitive data. Spanning various industries, from healthcare and finance to manufacturing and technology, these firms commonly hold a wealth of proprietary information, customer data and intellectual property. This data represents a lucrative opportunity for ransomware attackers who often consider private equity portfolio companies as easier, less cyber-mature targets with more financial resources to pay ransom demands.

Being financially supported by private equity firms, portfolio companies provide a tempting target for cyber criminals. The influx of capital that private equity firms inject into these organisations allows them to scale up their operations and acquire their own technology and other assets. With this scaling up comes more valuable data, digital infrastructure, and financial resources to exploit. The financial strength private equity provides is intended to fuel growth, but also places portfolio companies in the crosshairs of those looking to illegally profit off successful businesses.

Aside from a private equity cash injection boosting a company’s profile, the process of investing itself also introduces vulnerability. During the pre-investment process, due diligence typically focuses on financial and operational performance of the target company, sometimes relegating cyber risk to a secondary concern, being viewed more as an IT issue to solve rather than a business risk that needs to be comprehended and managed. This oversight could prove to be a costly mistake in today’s high-threat digital environment. Unnoticed risk factors within a company’s attack surface, such as outdated systems, unpatched vulnerabilities or inadequate employee training, can create potential loopholes for cyber attackers to breach the company’s network and systems. Furthermore, during the transition phase, personnel changes and shifting priorities may disrupt or delay the implementation of robust cyber risk management measures, providing yet another window of opportunity for ransomware operators.

Despite scaling up due to investment, portcos can still be prone to cyber attacks due to a lack of in-house cyber security expertise. While larger organisations might have dedicated teams and resources, smaller businesses in the process of expanding often lack the strategy or skilled personnel to maintain their cyber resilience. Cybercriminals are keenly aware of this vulnerability and actively seek out organisations with limited cybersecurity defences, knowing that their chances of a successful attack are significantly higher.

Finally, the interconnected nature of today’s corporate infrastructures and intricate supply chains amplify the risks. As these companies rely heavily on technology, often share sensitive information with partners or provide access to their systems to their numerous service providers, the attack surface expands, offering cybercriminals multiple entry points. Targeting critical or commonly used third-party vendors within private equity portfolios allows attackers to cause widespread damage and multiply extortion opportunities by affecting multiple portfolio companies within a single supply chain.

Altogether, the confluence of these factors underscores the true vulnerability of portcos to cyber attacks. With the expanding threat landscape and interconnected business ecosystems in play, failure to detect these potential issues in investments in a timely manner can lead to complications that not only outweigh the value of the asset but also pose a significant risk to the entire portfolio’s stability as well as the portcos and private equity firm reputation.

So how can you protect your portfolio companies from similar threats?

As we’ve seen, ransomware is not going away anytime soon, and current predictions suggest that ransomware attacks will continue to rise in 2024. The good news is, with a proactive approach to cyber risk management you can support your portcos in strengthening their digital defences against this menace throughout the entire deal lifecycle, from due diligence, through the hold period, and up to the exit.

So let’s explore tangible actions you can take at each stage to ensure your portcos remain resilient in the face of the high-threat environment.

Prioritising cyber risk management as part of due diligence and/or a 100-day plan

For due-diligence at the pre-investment stage and/or as part of 100-day actions following an investment, cyber risk management is a crucial consideration, as cyber threats can have severe financial and reputational consequences in the PE space for portcos. It’s therefore essential to address existing vulnerabilities early on. Conducting cyber risk assessments on your target companies will enable you to identify major red flags pre-investment, which may otherwise remain undetected, and empowers you to incorporate these findings into your investment considerations. By thoroughly examining their exposure, you gain a deeper understanding of cyber risks. This allows you to make better-informed investment decisions, factor cyber into valuations, and develop strategies to help your target companies bolster their defences against potential cyber threats during the value creation period, ensuring a resilient foundation for sustained growth and maximising the long-term value of your portcos.

Strengthening portfolio resilience with continuous monitoring during the hold period

As your portco advances through the hold period, its investments and growth strategy will be reassessed, and so should its cyber risk profile, as new digital perils surface daily. By conducting penetration testing on their portcos, implementing regular cyber risk assessments, and leveraging tools such as continuous monitoring, which involves consistently and actively observing digital systems and activities to swiftly identify and address emerging cyber threats and vulnerabilities, you can enhance its ability to detect emerging risks within your portfolio and support your portcos in implementing proactive measures to prevent future attacks. For example, following the discovery of the Fortinet zero day vulnerability, KYND immediately informed all of our partners’ customers, allowing them to patch before hackers had the chance to exploit the vulnerability.

The implementation of such tools into your processes will enable you to harness increased portfolio visibility and data-driven risk insights to compare benchmarks and identify trends and threats. All together, this valuable intelligence can be used to help your individual companies drive behavioural changes to decrease cyber risk and maximise valuation on exit. Furthermore, ongoing risk monitoring allows your private equity firm to demonstrate a commitment to robust cyber risk management practices to investors, stakeholders, and regulatory authorities, and instils confidence in your portcos’ ability to withstand cyber incidents, protect sensitive data and maintain operational continuity.

Prior to exit

As investors increasingly demand assurance about their cyber risk, you can lower your portcos’ risk profiles by conducting regular vulnerability assessments and continuously monitoring your portfolio’s cyber exposure during the value creation phase. This will also help them maintain their cyber health to ensure exit readiness and attract further investment. In addition, implementing powerful cyber risk intelligence as part of your ongoing portfolio risk management can serve as evidence of reduced risk through historical risk data available at the portfolio and individual company levels as you get your investments ready for exit and subsequent security scrutiny during your investment strategy.

Cyber risk management and regulatory compliance for portfolio companies

Implementing a proactive approach to cyber risk management across your portfolio not only prevents potential financial losses and reputational damage but also bolsters your portcos’ adherence to industry-specific regulations and data protection mandates such as DORA, GDPR or SEC among many others. Regulatory bodies increasingly demand organisations to demonstrate their commitment to safeguarding their cyber and operational resilience as well as protecting customer information and proprietary data. Mitigating the ransomware risk aligns seamlessly with these expectations, exemplifying a commitment to maintaining the trust of stakeholders and adhering to the evolving landscape of compliance standards.

All in all, through a comprehensive strategy that encompasses proactive cyber risk management, advanced threat detection, regular employee cyber awareness training, and resilient backup protocols, your portcos can not only fend off ransomware threats but also strengthen their compliance endeavours, positioning themselves as responsible fiduciaries and keepers of valuable information in a digitally uncertain age.

Take advantage of powerful cyber risk management technology for your portfolio companies

KYND’s powerful technology can help remove the stress of identifying ransomware and cyber risks within your portcos at each stage of the deal cycle, easily and quickly. With KYND, you gain immediate access to a targeted overview of all your portfolio's exposure. Additionally, KYND continuously monitors your investment portfolio for emerging vulnerabilities on your behalf and offers tailored, prioritised mitigation advice directly to your portcos so that they can neutralise potential cyber threats before the worst happens. This allows your investments to effectively reduce their risk profile, while enabling you to make better-informed data-driven investment decisions.

By prioritising proactive cyber risk management and leveraging advanced technology solutions such as KYND, investors like you can support their portcos in fortifying their defences and helping them to thrive in today's increasingly perilous digital landscape. Don’t let cyber risk hold you back! If you would like to find out more about how KYND’s industry-leading risk management technology can help you and your portcos stay ahead of the game when it comes to cyber resilience, get in touch with us today.

Share this article
Join the newsletter

Accreditation & Features