Part 1 – Why Cybersecurity is Now a Dealbreaker in Staffing M&A
Mergers and acquisitions in the staffing industry have always been driven by financial performance, client contracts, and operational efficiency. However, in today’s market, cybersecurity has become a major factor in deal success or failure. Buyers are scrutinizing security postures more than ever, and firms with weak cybersecurity protocols are increasingly facing reduced valuations or even deal cancellations.
To understand why cybersecurity is now a make-or-break issue in staffing M&A, I sat down with Mike Glover, one of Canada’s most experienced enterprise architects and a leader in cybersecurity for M&A transactions, and Krisann McDonnell, an M&A and security expert at Charter.
Brian Kennedy: Mike, cybersecurity wasn’t always a top priority in staffing acquisitions. What changed?
Mike Glover: “A few years ago, buyers treated cybersecurity as an IT issue they could deal with after the acquisition. That’s no longer the case. Now, buyers want proof of strong security practices before closing a deal. If they uncover security gaps, they’ll either walk away or use them as leverage to lower the valuation.”
Brian: Why is cybersecurity an even bigger concern in staffing M&A than in other industries?
Mike: “Staffing firms handle enormous amounts of personally identifiable information: candidate resumes, payroll details, client contracts. If that data gets compromised, the entire business model is at risk. A breach doesn’t just impact one company; it can expose thousands of candidates and clients. Buyers don’t want to inherit a data security mess, and they’re going to pay less, or not buy at all if they sense risk.”
Brian: So how does cybersecurity affect valuation in real-world deals?
Krisann McDonnell: “Buyers aren’t just looking at EBITDA anymore. Cybersecurity risk is now a major factor in valuation. A firm with a strong security posture can command a premium price, while one with poor security might see its valuation drop overnight. I’ve seen firms lose millions in potential deal value simply because they didn’t have proper security controls in place.”
Mike: “I worked on a deal where the seller assumed security wouldn’t impact valuation, but when the buyer’s tech team did a deep dive, they found unencrypted payroll records and no multi-factor authentication. The buyer immediately cut their offer by 20%. The seller was blindsided, but in today’s market, buyers aren’t willing to take that risk.”
Brian: What security red flags are most likely to make buyers reconsider a deal?
Mike: “There are a few major ones:
- Outdated software – Staffing firms often use legacy applicant tracking and payroll systems that lack modern security controls.
- No multi-factor authentication (MFA) – If employees can log into critical systems with just a password, it’s an easy target for attackers.
- Third-party vendor risk – Many staffing firms use third-party providers for payroll, background checks, and CRM tools. If those vendors have weak security, the risk extends to the buyer.”
Krisann: “I’d add past security incidents to that list. A lot of sellers don’t realize that previous breaches, even if they were resolved, can still impact valuation. Buyers want full disclosure, and if they find out about a breach the seller didn’t mention, it immediately raises trust issues.”
Brian: So for staffing firms thinking of selling, what should they do now to avoid cybersecurity hurting their valuation?
Mike: “Start preparing early. Sellers should:
- Conduct a cybersecurity audit before a buyer Fixing problems before due diligence prevents last- minute deal surprises.
- Ensure regulatory Staffing firms operate across multiple jurisdictions, and buyers don’t want compliance headaches.
- Harden access controls. Remove ex-employee access to critical systems and require multi-factor authentication for sensitive data.”
Krisann: “Also, be ready to prove your security maturity. Buyers love seeing a cybersecurity due diligence package that outlines your policies, recent audits, and security improvements. It signals that security is a priority, which builds confidence and protects valuation.”
Brian: Final thoughts? What should staffing firms take away from this conversation?
Mike: “Cybersecurity isn’t just an IT issue anymore. It’s an M&A deal factor that can determine whether a transaction moves forward or collapses. Sellers who ignore it risk losing millions.”
Krisann: “Security preparedness isn’t just about avoiding penalties, it’s an opportunity to increase valuation and buyer confidence. The firms that address cybersecurity early will have the most leverage when negotiating a deal.”
Conclusion
Cybersecurity is no longer optional, it’s mandatory in today’s M&A environment. For staffing firms looking to enter the market, taking proactive steps to strengthen cybersecurity before the process begins can make a world of difference.
By conducting audits, upgrading systems, training employees, and ensuring compliance, firms can increase their marketability, protect their valuation, and set themselves up for a successful transaction.
Take Action Now.
If you’re considering selling your staffing firm, don’t let cybersecurity be the reason you lose value or delay your deal. The risks you overlook today could be the very reason your deal falls apart tomorrow.
As someone who specializes in selling staffing companies, I can tell you that the firms that address cybersecurity issues upfront are the ones more likely to get top dollar. It’s a marketable characteristic of your enterprise. If you want to make your business as attractive as possible to buyers, it’s crucial to address any cybersecurity vulnerabilities now.
Charter can make that process easier. They offer confidential cybersecurity assessments that help firms identify weaknesses, improve their digital hygiene, and ensure they’re ready for a successful transaction.
No cost. No pressure. Just real insights.
Schedule a complimentary, confidential consultation with Charter today: [kmcdonnell@charter.ca]
You can also ask us your M&A questions: brian@racohenconsulting.com and be sure to check our Resources Library out here: https://racohenconsulting.com/library
Your business value depends on it.
In the Part 2, we’ll examine hidden cybersecurity risks in staffing acquisitions and how buyers can uncover potential threats before closing a deal.
