Cyber Risk Is Now a Valuation Metric: Are You Prepared?

A CEO Guide for the Coming Wave of Exits and Acquisitions

 

Over the next five to ten years, the market will see the largest generational shift in business ownership in modern history. Hundreds of thousands of SMB and mid-market owners will begin succession, recapitalization, or sale discussions.

Private equity knows this. Strategic buyers know this. Advisors are already preparing for it.

But here is what most sellers do not know.

Buyers now have a new valuation lever that quietly reshapes deals long before numbers hit the term sheet.

A lever most sellers never see. A lever that quietly moves millions from the seller’s side of the table to the buyer’s side.

That lever is cyber risk.

And the question every seller should be asking is this:

 

How can a buyer justify lowering valuation when no one has accurately measured cyber risk?

The answer is simple.

Because in every deal, the buyer controls the math.

When the buyer encounters uncertainty, they move to the safest position available:

Lower the value. Protect the fund. Shift the liability back to the seller.

And the seller has no ability to disprove the discount.

Because valuation in a deal is not shaped by objective truth. It is shaped by perceived uncertainty.

When buyers encounter uncertainty they cannot quantify, they use the same tool every dealmaker trusts:

They discount the price.

 

What the numbers really mean for sellers

Cyber-related valuation reductions fall between 5% and 12%, with 8% as the quiet industry midpoint when proof is missing.

Most lower middle market deals fall between $10M and $100M. Mid-market transactions commonly land between $100M and $250M.

Apply an 8% haircut:

• A $40M sale loses $3.2M
• A $75M sale loses $6M
• A $150M sale loses $12M
• Larger deals lose even more

And the percentage increases depending on the industry.

 

Where PE Is Hunting in Late 2025 & 2026 — and Why It Matters

Buyers are concentrating on industries with:

• predictable cash flow
• high data sensitivity
• operational dependence on technology
• large third-party ecosystems
• increasing regulatory pressure

These sectors include:

Financial services, lending, mortgage, recurring revenue, compliance pressure, sensitive data.

Healthcare services and medical groups, Ransomware disruption risk, PHI liability, and continuity expectations.

SaaS and IT services APIs, code security, identity controls, vendor ecosystems.

Wealth management and advisory firms face BEC risk, wire fraud exposure, and client data obligations.

Industrial and supply-chain companies: Automation, OT/IT overlap, downtime risk, resilience requirements.

These industries face greater valuation reductions (8%–15%) until cyber readiness is demonstrated, as the consequences of failure are severe.

 

Why buyers hold the advantage

Buyers do not need perfect information to reduce value. They only need the missing information.

Missing data creates doubt. Doubt creates leverage. Leverage creates price reductions.

Cyber becomes the buyer’s hammer because the seller has no shield.

And this gap keeps widening because:

• Sellers assume their MSP “handles security”
• IT focuses on uptime, not liability
• Insurers keep raising requirements
• Regulators now expect evidence
• AI is accelerating exposure Vendors and third-parties create blind spots
• Advisors still treat cyber risk as a technical issue

In twenty-four years, I have never seen a clean assessment. Not once.

There are always gaps. And sellers rarely discover them until the buyer does.

 

The next wave of transactions will expose the unprepared

Cyber readiness is becoming a valuation metric — not a technical formality.

Here is the line every seller must understand:

If the buyer knows more about your risk than you do, the buyer will always win the negotiation.

For sellers, this is not a technology issue. It is a value-protection issue.

When you can prove your cyber readiness, the buyer’s hammer disappears. When you cannot, they use it.

Uncertainty benefits the buyer. Clarity benefits the seller.

And clarity only comes from a validated cyber risk program — not a last-minute scan or a checklist.

If you are planning a transition in the next three to five years, now is the time to get ahead of this.

Because once the buyer starts asking the questions, it is already too late.

If you want to understand your real cyber risk position — before a buyer uses it against you — visit www.ncxgroup.com. Share this article with a business owner you know; it might save them millions.

 

PS: If the buyer finds a gap before you do, it becomes a discount. If you find it first, it becomes a plan. That is the difference between losing millions and protecting what you’ve built.

 

By Mike Fitzpatrick

Founder & CEO, NCX Group, Inc. 24 Years in Cyber Risk Management

 

Repost from LinkedIn – https://www.linkedin.com/pulse/cyber-risk-now-valuation-metric-you-prepared-mike-fitzpatrick-ynqof/

 

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