Virtual Data Room Blog

M&A Life Cycle Series III:Due Diligence & Data Rooms

Mar 24, 2017 9:00:00 AM / by Kamal Raj

Data Room Your data rooms are all set up and you’re ready to enter the due diligence stage of your merger or acquisition. As was the case in the pre-due diligence phase, the actions depend on whether the process is driven by the buyer or the seller. In the third in our series of posts on the M&A life cycle, we’ll take a look at both options, following on from the planning done at the end of the previous stage.

 

Competitive Sale Process

During the planning stage, the seller identified documentation to release to potential buyers, and the sequence and timing of the release. To kick-start the process, interested parties are granted access to these documents and the vendor’s management team opens the data rooms for them. Throughout this period, the seller can obtain deal intelligence from the VDR’s auditing and reporting tools. This helps you to ascertain who is looking at what documents to gauge their levels of interest.

Deal Communication

It’s inevitable that there will need to be communication between buyer and seller in an M&A deal, and while the traditional methods of letters and telephone calls still work, more and more deal communications are being channelled through the data rooms. The benefits of using the VDR’s facilities for liaison purposes include:

  • A Q&A feature that enables parties to ask questions
  • Alerts generated by the system
  • Automatic daily or weekly updates

Deal communications are typically coordinated by the investment bankers, who provide comprehensive answers depending on the phase of the prospective buyer’s level of interest.

Letters of Intent

When letters of intent are submitted during due diligence, it’s possible to review them securely within the data rooms and short-list bidders accordingly. Based on the progress achieved during this stage, the deal manager then releases additional levels of documentation to those bidders who indicate appropriate levels of interest.

Meetings

Few M&As go through without needing to organize and manage a range of meetings. Often, the potential buyers want to conduct site visits to view the seller’s operation for themselves prior to submitting a bid. While on site, they may need access to documents contained in the data rooms to verify the accuracy of asset data and operational reports.

Drafting SPAs

If the due diligence process appears to be going well and no legal issues arise to delay the process, the buyer and seller can begin drafting the sale purchase agreement (SPA). This outlines all aspects of the transaction, such as:
  • Purchase price
  • Payment terms
  • Date of ownership
  • Employee impact and compensation
  • Transfer of assets

The draft SPA is circulated so all parties can review the final bids and determine which buyers remain in the process.

One on One Process

When the process is driven by a potential buyer, there are usually only two parties in the deal: the buyer and the seller.

Due diligence begins with the buyer reviewing the documents provided by the seller, which are usually the data he requested in the pre-due diligence stage. This enables the buyer to determine what information is needed to submit a Letter of Intent (LOI), ask questions about specific documents or request additional material for clarification purposes. These activities are typically coordinated through the data room’s Q&A facility, which enables secure transmission of the requests and the responses.

The various advisors involved in the deal prepare a preliminary report outlining their key findings and submit it along with an LOI to indicate to the seller that the buyer is serious. Both buyer and seller perform any confirmatory due diligence, discuss their findings and ask questions to determine what information needs to be submitted to carry the process forward.

Meetings are held between the buyer and seller’s management to decide how the organization will be structured after the deal is complete. Reports and findings are reviewed by the various advisors to ensure that no critical issues have been overlooked. The buyer takes the decision on whether to proceed with final submission of bid and if so, whether to include a first markup of the SPA and/or to request exclusivity.

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