Private equity (PE) firms and their investments have become attractive targets for cybercriminals. They are perceived as treasure troves of sensitive client and market information and often operate within a complex network of relationships with banks, legal partners, and their portfolio companies. This places them in a unique position of vulnerability, where a single weakness can lead to significant impact across a wide portfolio.

A treasure trove of information

A significant part of this vulnerability stems from the nature of PE firms’ investments. Many of their portfolio companies are start-ups or scale-ups, which often lack mature security infrastructure.

In one survey, 52% of organisations reported that their client’s stock value suffered due to data breaches experienced by companies they acquired. Almost half (49%) of these organisations revealed that undisclosed breaches have caused deals they were part of to collapse. Furthermore, 82% of organisations believe that a robust cyber security infrastructure increases the assessed value of a company.

A successful attack on one portfolio company can potentially compromise others and even the PE firm itself. Extracted data can be used for various malicious activities, from insider trading to strategic business sabotage, and disruption to business operations can be detrimental to the bottom line. Moreover, the high volume and value of financial transactions these firms manage present a lucrative opportunity for attackers. The implications of a cyber-attack can be devastating, leading to the collapse of client projects, reputational damage, and potentially hefty fines. It takes years to build brand reputation and trust with investors, but just one momentary lapse of security to diminish the value of an investment or impact the company’s opportunity to cash out from investments. It can also negatively impact the PE house’s ability to re-leverage or pursue acquisitions.

One global IT service company has reported that 68% of PE houses see an increase in cyber incidents during the month of a deal closure. Of these companies, the increase in incidents can jump as high as 116% post-close. Furthermore, once a deal is closed, the frequency of incidents continues to rise in the following month. This can have serious implications for PE houses’ buy-and-build strategies and dent plans to make further acquisitions in the same industry.

PE firms are particularly susceptible to business email compromise (BEC) attacks, where fraudsters trick businesses into transferring funds to their accounts. Recent advancements in artificial intelligence (AI) have also led to sophisticated impersonations via email, voicemail, and video. With the latest generative AI (GenAI) tools criminals can impersonate a person with just three seconds of audio and seven seconds of video, making the barrier to conducting a successful spoof much lower.

Increasing awareness and concern

General Partners, who manage the day-to-day operations and investment decisions of PE firms, are now taking action to protect their businesses from today’s greatest cyber threats. And so are the Limited Partners, who increasingly want to know how their investments and the portfolio companies are being protected from cyber risks. There are therefore plenty of reasons why PE firms must treat cyber risks as seriously as market and legal risks. A successful cyber-attack on a portfolio company can jeopardise the reputation and financial stability of the firm and its investors.

PE firms are vulnerable on multiple fronts, from their vendors and third-party suppliers to their portfolio companies.

Protecting the investment lifecycle

As PE firms know, the investment lifecycle is critical. And cybercriminals know this too. Preparing for the buying and selling of any company is important. Ensuring that a company is secure can increase its valuation, while being aware that cybercriminals may target specific companies at key times, such as just before they go up for sale.

By managing the cyber security of their portfolio companies professionally, PE firms can minimise risk, maximise exit value, and uphold their reputation. In the face of an ever-growing cybercrime economy, proactive cyber security measures are no longer optional but an absolute necessity for PE firms.

Adopting a portfolio-wide cyber security strategy and culture

By establishing a portfolio-wide strategy to mitigate cyber risks, PE firms can do a lot to protect themselves. This includes fostering a culture of cyber awareness, providing comprehensive training for employees across both the PE firm and its portfolio companies, and establishing partnerships with trusted cyber security experts.

A threat-centric approach to cyber security is crucial. Not only must PE firms assess the potential impact of a breach on each company’s brand, reputation, or strategic value, but they must also take into account knowledge of the threat landscape and implement protective measures accordingly.

Find out more

Being a private equity-backed business ourselves, we possess an in-depth understanding of the industry and its unique challenges. This experience enables us to better support private equity houses and their portfolio companies through our knowledge of their decision-making processes, their goals, and their work to enhance value.

Whether you are a PE firm or a PE backed business, get in touch today to discuss how Quorum Cyber can help protect your investment by combining our in-depth industry knowledge with Microsoft Security.