Cyber risk focus areas for portfolio companies

IT management is a top concern, with many portfolio companies struggling with IT hygiene, potentially leaving them susceptible to costly breaches, according to a report from BlueVoyant.

“When it comes to private equity portfolio companies, we see a wide range of cyber defense postures,” said Dan Vasile, VP, strategic development at BlueVoyant. “Cybersecurity as a subset of risks is sometimes overlooked. This analysis confirms the need to prioritize cyber defense in order to protect portfolio company value. The private equity space is beginning to get on track. However, we must button up the entire process to protect those vulnerable entities, as well as ramping up a cyber defense against less easily exploitable but equally damaging threats.”

BlueVoyant analyzed 780 portfolio companies from private equity-backed firms, with the majority headquartered in the U.S., but including companies across Europe and around the globe. Key survey findings include:

• 19% of the examined portfolio companies are exposed via “Zero Tolerance Findings” discovered in their internet-facing, publicly accessible footprints. BlueVoyant defines zero tolerance as critical known findings that are easily exploitable by malicious actors and are commonly associated with successful ransomware attacks. Should these vulnerabilities be exploited, it could lead to loss of data and service availability, translating into customer distrust and financial loss.
• More than 70% of the critical internet-facing findings are related to IT hygiene.

“It is imperative that private equity firms effectively oversee their digital ecosystems by continuously monitoring their portfolio companies to quickly remediate issues and minimize the financial impacts of any cyber attacks,” says James Tamblin, vice chairman, strategic development at BlueVoyant. “Without proper cyber risk management, these companies can face costly repercussions, especially if improvements in IT hygiene are not made.”

At a recent private equity roundtable attended by 20 private equity firms, there was widespread recognition that cyber risk is important. But at the same time, it was felt that due diligence can slow the acquisition process down. Private equity firms competing to buy portfolio companies say that the speed of the deal is key and that too much compliance can be a negative. They, therefore, recognize that there is a trade-off between managing cybersecurity risk and securing the deal.

To maintain cyber vigilance within private equity firms, BlueVoyant recommends proactively working within portfolio companies to reduce cybersecurity risk and avoid the costs associated with breaches. Working with portfolio companies to improve IT management practices to current standards is key, as well as establishing a prioritised risk reduction program, and continually assessing for any weaknesses in their real-time risk posture.