The wide adoption of Virtual Data Rooms has been fundamental in the reduction of deal leaks, the two words that can spell disaster for a high value deals. The ability to track every user’s movements within the dataroom, remotely block access to users and call on this information at a later date has all contributed to more secure deals.
Whether it’s careless employees, malicious competitors or hackers you are protecting information from, there are steps that are increasingly being taken in the industry to prevent leakages and we will guide you through these below.
How do Deals Leak?
Deliberate Leaks -
There are two angles to a (deliberate) deal leak – One from the sell side one from the buy side :
• Sell Side leaks - By leaking deals, the sellers attempts to increase the price as it would attract more interested parties who might also like to bid. The rival bids may then push the original bidder to increase their offer.
• Buy Side leaks are more of an exit strategy from a potential bid. During the due dilligence process, the buyer may run into issues and decide to move out of the process without running into any legal or regulatory hurdles. Some do this by leaking the deal which in turn results to a delay in completion time. This makes the sellers look for alternate bidders and the buyer now has an easy exit without having to pay the price of breaking the deal agreement because the deal is broken by the seller and not the buyer.
Sometimes deals are deliberately leaked to expedite the process. A buyer might leak a deal and put pressure on the seller when he sees delays from the sell side and a seller might leak the deal to force the interest level out of the buyer.
Then there is deliberate leak for personal gains by way of insider trading etc.
Inadvertent Leaks –
“Humans are the weakest link in Security Chain "…Does this phrase ring a bell? If it does, you know exactly what we are trying to explain here. People are often ignorant of the consequences of being careless with information. By way of socialising, people sometimes let slip that critical information without even realizing it. Deal teams these days have a number of individuals working on specific areas in the DD process. With so many individuals being a part of the transaction, the risk of accidental leaks is much higher.