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M&A Virtual Data Rooms: How to Improve Due Diligence with a Strong Preparatory Phase

03-Jan-2018 14:58:00 / by Kamal Raj

Importance of Data Room in Preparatory Phase

Only around 50% of M&A deals actually go through according to Forbes magazine. The main reason for that high failure rate is that the companies acquired looked better on paper than they actually were. This makes a well executed due diligence process critical, which is only possible if the full M&A life cycle is properly executed.


This life cycle can be managed more efficiently through the use of M&A Virtual Data Rooms, which can play a key role in managing each phase of this lifecycle, starting from the preparatory phase to a successful post deal closure phase.

In this post, we will focus on this initial preparatory phase, outlining the essential components and stakeholders involved, plus demonstrating how the virtual data room can be used to make this stage of the M&A process more efficient.

Creating Deal Infrastructure

The first step in preparing for an M&A is for all parties involved to determine which areas of due diligence will be undertaken and how they will be managed. How they will be managed is a critical choice, because most deals require a high level of confidentiality and security and for the deal to be successful, the organizations involved need secure access to sensitive corporate data.

There are often a number of options when finding a platform to share data, from simple platforms such as Dropbox to more advanced virtual data rooms, which offer you a much higher level of control, service and security.

For M&A, the option of choice will tend to be a secure, easy to use data room that gives you full control over the sharing of your documents and a high level of support to allow you to focus on your deal.

Appointing Advisors

The vast majority of business owners have no experience when it comes to merging or selling their business. The M&A process is fairly complex and requires a strong team of advisors to achieve the best results. The team usually consists of:

·         Legal advisor: this could be a lawyer experienced in the deal process who has a detailed, outcomes-focused brief from the client.

·         Financial advisors: most M&As require both an accountant and a tax advisor, because merging or selling a company has significant tax implications. A company may also need financial professionals such as investment bankers and other consultants to round out the team of advisors.

·         Strategic consultant: just because the buyer knows the industry doesn’t mean he or she is capable of evaluating a company’s strategy mid-stride. Strategic due diligence needs to be done with the help of experts in this type of analysis, if the deal is to be successful.

Each of these advisors needs to be able to access the secure data, and a virtual data room is the most flexible option for them.

Choosing Vendors

The selection of suitable suppliers for the various infrastructure requirements is vital to the success of an M&A. With the electronic virtual data room having largely taken over from the physical data room, the choice of data room supplier can literally make or break the deal. Choosing a virtual data room provider demands that you identify elements such as:

Security - how secure is your documentation? Can you control who accesses which documents? 

Cost - Are you getting value for money? The cheapest option might not be the best one. See which vendors can meet your specific requirements and look at what is included in the price.

·         Service levels - What does your support team look like? Is support available 24/7? Having a good support infrastructure in place will ensure that you get the most out of your data room platform and allow you to focus on the deal. Support should go beyond simply technical help. Find out how much of the task management your provider is prepared to take on and how much time that could free up for you to focus on the deal

·         Reputation and stability - Which other companies trust the vendor with their deal? Have they won industry awards or accreditations? Look for impartial signs of quality from your vendor.

·         Reliability and simplicity - You can’t afford for your platform to go down at the wrong time and likewise, you can’t have a platform that is so complicated that nobody can use it. Time is everything in M&A, so find out how much downtime there has been on the platform and get a demo to ensure that it is accessible for everyone

Providing a Platform

Once you identify an appropriate vendor, you can begin working with the virtual data room coordinator to design the data room structure. Depending on the origination of the data, this phase may vary quite substantially. However, the core activity in the data room is about evaluating the business objectives of both the buyer and the seller. Whatever the process required, the appointment of an experienced virtual data room coordinator to handle the uploading of documents, indexing of the data, identification of access levels and setting up of user permissions will make your task much easier.

When the preparatory phase is complete, the parties will have a strong platform in place to commence a full and rigorous due diligence process and ensure that the deal has the best chance of success.


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Topics: M&A, due diligence, virtual data room