With Apple’s purchase of Beats, Pfizer’s failed bids for AstraZeneca, and financial experts pointing to a rally in the M&A market, the last month was a busy one for mergers and acquisitions. Of course, when we first see headlines of a high profile company’s plans for a merger or acquisition, we rush to think of the strategic and industry implications of such a deal. But underneath the “what ifs” and “visions for the future,” is a darker side of M&A that doesn’t make the headlines: the routineness with which companies are breached and crucial data is stolen when two high-profile organizations look to join together.

Over the last few years, concerns over economic espionage have led to greater scrutiny of mergers and acquisitions involving foreign companies – particularly in industries with sensitive technologies and operations that could pose broader economic and security threats. However, entering into a merger or acquisition with a foreign company is not the only way nation-states conduct economic espionage via cyber means, nor are nation-states the only perpetrators of intellectual property theft.

From our experience responding to these breaches, we’ve seen targeted threat actors actively pursuing companies involved in mergers and acquisitions in two ways:

• Breaching one of the merging or acquired company’s subsidiaries’ and/or partners’ networks to ultimately gain access to the targeted company’s environment and information
• Compromising and stealing information from a company involved in business talks with a foreign enterprise in order to provide the other side with an insider advantage in the negotiations

From One Friend to Another: Taking Advantage of Trusted Relationships Between Companies

Some threat groups compromise an organization’s environment and then move laterally over a connected network to a partner or subsidiary, while others rely on social engineering tactics, such as the use of phishing emails that appear to be from employees at the partner company. We have seen China-based threat groups previously compromise targets by taking advantage of trusted relationships and bridged networks between companies. Regardless of their method of entry, these actors are often in search of the same thing: intellectual property and proprietary information that can provide their own constituents with a business advantage, whether through adopting a rival’s technology and products, securing advantageous prices, or any other tactic that could give them a leg up.

We investigated one incident in which two threat groups compromised a company shortly after it acquired a subsidiary. The threat actors used their access to the initial company’s network to move laterally to the subsidiary, which had recently developed a proprietary process for a significant new healthcare product. Once inside the subsidiary’s network, the threat groups stole data that included details on the product’s test results. We believe the threat groups sought to give that data to Chinese state-owned companies in that industry for fast-tracking the development of their own version of the groundbreaking product.

Cheating the System: Insider Advantages in Negotiations

We have also seen threat groups compromising organizations involved in merger or acquisition talks with Chinese entities, likely in an effort to steal data that could give negotiators and decision makers valuable insider information with which to manipulate the outcome of the proposed transaction. Unlike other types of economic espionage operations, the threat groups in this type of scenario are generally not in search of a company’s intellectual property. Instead, these actors look for data such as executive emails, negotiation terms, and business plans and information; all of which could benefit the negotiators by giving them insight into the victim company’s financial situation and negotiation strategy.

During one investigation, we found that a China-based threat group had compromised a company that was in the process of acquiring a Chinese subsidiary – a move that would have significantly increased the victim company’s manufacturing and retail capacity in the Chinese market. The threat actors accessed the email accounts of multiple employees involved in the negotiations in what was likely a search for information pertaining to the proceedings. We believe that the threat group then used the stolen information to inform Chinese decision makers involved in the acquisition process, as the Chinese government terminated the talks shortly after the data theft occurred.

What can we expect?

Companies involved in mergers and acquisitions need to be aware of the risks they face from threat actors intent on conducting economic espionage. Entering into a merger or acquisition with an organization that has unidentified intrusions and unaudited networks places a company at risk of compromise from threat actors who may be waiting to move laterally to the newly integrated target.

Similarly, companies, and the law firms representing them, involved in negotiations with Chinese enterprises face risks from threat groups seeking to provide the Chinese entity with an advantage in negotiations. Compromise and economic espionage can have profound impacts on a company’s finances and reputation at any time, but particularly when they are risking hundreds of millions to billions of dollars on M&A.

In many cases as well, there are broader issues of national security, so it’s imperative that companies seek to recognize and mitigate these risks as part of their M&A processes moving forward. Even governments sometimes attempt to mitigate these risks by conducting national security reviews and occasionally rejecting bids based on their findings.[i] Threat actors from many countries engage in economic espionage, making for a wide and varied threat landscape that cannot be handled by the government alone. For examples of just how diverse and crowded a space the targeted threat landscape is becoming, see our recent blog posts on Molerats, Saffron Rose, and Russia and Ukraine.