We already know that M&A is at the core of the Virtual Data Room industry. But why do Virtual Data Rooms make life easier during M&A? We will be exploring 11 reasons why sophisticated technology is being used to connect buyers and sellers across the globe, leading to record breaking multi-billion dollar transactions.
Sell-side perspective: If you are selling your company, selling a minority stake in it or just partnering with another firm to form a joint venture, here are 7 reasons why virtual data rooms will make your life easier.
1. Security
At the core of the virtual data room industry is the ability for technology to protect the confidential documents of the seller better than any other option available in the world. Traditionally physical data rooms were used to do this job. Restricted personnel were given time bound access to this data in a room and the documents were not allowed to be taken out of this physical room. Was this method full-proof? Not at all! It was very common to find pages missing and it still is nearly impossible to track who was responsible for the leak. Contrast that with breaking industry standard 256-bit encrypted security; it just does not happen!
2. Zero incremental costs to get more bidders
Whether you have ten users accessing your data or a hundred, the cost of running a virtual data room remains the same. Contrast that with the traditional physical data rooms that require the booking of hotel rooms for extended periods of time so that new bidders could also be given access. Each additional day costs 1000s to the sell side company.
3. Deals happen in record times
Once there is intent and an NDA is signed between the buy side and the sell side firm, all it takes is the addition of the buy side firms users to the data room through the use of their email ids. They are then added to a group and then the group is given permissions such as no print access and transparent name watermarks before sending out the invitations for them to start their due diligence. Immediate access means quicker results.
4. Avoid future legal tangles
The ability to audit every nitty gritty of the process from the time a user logs on to the time that his access is disabled, allows for 100% transparency. Legal issues have cropped up in the past because the buy side companies that are doing the due diligence have accused the sell side companies of not sharing complete information. With the ability of virtual data rooms to track every bit of data room activity from the number of file opens to the number of logins and 50 other such audits, there is no chance of legal issues in the future.
5. All questions and answers happen in one place
No need to get exhausted digging through emails when a central Q&A console lists out the questions raised, the document they are related to and their level of importance. These details are followed by the response, the person who responded and when the response came. A simple export of the questions and answers provides a formatted excel sheet of all the interactions throughout the deal.
6. A dedicated team of Virtual Data Room Experts reduce the workload
Service is understated in this industry because there are so many players who provide DIY (Do-It-Yourself) products to cut down on costs. Even the biggest firms do not provide dedicated teams to work on your transactions. Why are these experts important? Because they are a huge value add during the due diligence process. When you are the advisor or company secretary you do not need to log in to your Virtual Data Room to upload 10,450 documents, add 16 new users in 5 different groups and then ensure that permissions provided to each group are as per the policy you created during the initiation of the data room. Your dedicated team will save you 2-4 hours of extra time per day in virtual data room management so that you can focus on other essential tasks.
7. Unmatched Convenience
What could be easier than logging on to a website like dataroom.ethosdata.com in the comfort of your own office in Singapore, uploading the last 10 years of your life’s work in 30 minutes and then giving access to bidders in Australia, India, Canada, China and the United Kingdom in 10 minutes through the “Send Invitation” feature. Then all you need to do is watch the whole process of due diligence unfold real time through graphs and audit reports. Eventually you might get an offer of 263 million dollars, a valuation you might accept. Virtual Data Rooms provide unmatched convenience!
Buy-side perspective: If you are looking to improve your return on investment through acquisitions or mergers, whether for financial or strategic reasons, here are 4 reasons why you should request the company you are considering to give you access through a virtual data room
1. The ability to be involved in multiple M&A transactions simultaneously
Imagine you are investing abroad and considering three acquisitions in the telecom space. The problem is that all three opportunities need your attention during the same period of time. The only way that would be possible is if you get access to all 3 data rooms through the virtual mode. Just like its convenient for the sell-side firm to sit in their office and sell its company globally, your firm can enjoy the same convenience by evaluating all the three options simultaneously in the comfort of your own office.
2. Legal costs are lower
When your company spends less time traveling and having your advisors travel, your legal costs are bound to reduce by a substantial percentage. Despite the love hate relationship lawyers have with Virtual Data Rooms, its an advantage that you should not ignore.
3. Easy to track progress
The New Items feature breaks down what’s been done and what’s still pending. By easily being able to measure progress by viewing new documents that have been added between a date range and identifying the ones you still have not opened, the efficiency with which due diligence is conducted is unmatched.
4. Q&A is a breeze
Click on the “ask question” icon right next to the document the query is related to, fill out your question and wait for an email that alerts you of the response. Just like sell-side firms, the buy side firms enjoy this same advantage of the Q&A console.
Conclusion
The reason why virtual data rooms are at the core of the M&A industry is because they make life easier for all the parties involved during the M&A process. Mergers and acquisitions are riddled with long hours, stressful negotiations and immense sums of money changing hands. With little room for mistakes, the last thing that the sell-side or the buy-side want to worry about is technology. In the past two decades technology has streamlined processes to offer convenience and cost saving through the ability to share and access confidential information for due diligence at the click of a button. With questions and answers being managed internally within the virtual data rooms, audits tracking everyones activities and dedicated team of virtual data room experts ensuring that the technology is being used to its optimal capacity, each person involved in the M&A process lives an easier life than their predecessors.
Have you experienced the benefits of using Virtual Data Rooms during M&A transactions?
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