The actions you take in the early stages of a merger or acquisition transaction through a Virtual Data Room will set the tone for the remainder of the process. This can be daunting, especially if you’re new to the environment, but by planning ahead and giving special attention to certain policies and procedures you can ensure a smooth, streamlined process.
Virtual datarooms replaced physical datarooms years ago, mainly used during the due diligence process. But it is now that we are really seeing the additional benefits of a dataroom in the early steps of a transaction:
Step #0: Tempting Buyers with Teasers
An interesting thing about the teasers is that its usually anonymous. The intent here is to give enough information to the other party to make them want to know more. Mostly a Sell-side M&A advisor runs this process and makes sure that the name is not divulged until the buyer signs an NDA.
Now with the help of Virtual Datarooms, Bankers are able to send teasers and gauge interest by using the review reports to see if the information was looked into by the party. A slow release of information is often better than giving out everything and a Virtual Dataroom perfectly fits into this role with its notifications & reporting analytics tools.
Give out information - Analyze interest level - Open up access for more details.
Step #1: Execute a Non-Disclosure Agreement with Parties
Get all parties involved in the transaction to sign a non-disclosure agreement (NDA). This doesn’t only apply to the buyer’s and seller’s executives, but to any other employees who have access to the documentation. It also applies to your virtual data room vendor.
Most VDR companies offer standard NDAs to sign as additional assurance of the security of your data. Verify whether any document scanning that is required is being done by a third-party scanning partner, because you may need to extend the NDA to them.
Step #2: Plan the Folder Structure
Before you start scanning in documentation for storage in the virtual data room, you need to plan a logical structure for the information. A folder setup with unique naming conventions and clearly indexed categories or sections helps to eliminate confusion when users are searching for relevant data. Check whether your data room provider offers a base folder structure template that you can customize to suit your specific transaction.
Step #3: Prepare the Documentation
Preparing your documents for scanning is necessary if you still maintain paper records. Scanning at the right resolution is critical to ensure that the data is readable without the files becoming too large to open and download.
Ideally, your resolution should be 300 dpi for images and 150 dpi for text, but you may have to review these criteria to ensure that the PDFs remain small. A large document will cause difficulties for the end-user when it is downloaded.
Step #4: Grant Access Levels
Determine the number of people who need access to the virtual data room on both the buyer’s and seller’s sides. Limit the overall number to internal working groups if possible. This will help to protect the transaction against premature disclosure, which can have disastrous consequences.
Segment the information so that general data is available to all parties, while proprietary information is reserved for limited viewers. Do this by:
- Setting up entry-level access to general documentation.
- Analyzing the interest of the various parties using the virtual data room deal analytics tool to identify serious contenders.
- Open up access to sensitive data for interested parties.
Step #5: Set Document Notifications
Make sure everyone who is authorized to access the virtual data room is aware of new information as it is added. Setting up real-time daily or weekly email notifications of additions to the information provided for the due diligence process will help the parties involved attend to issues quickly.
It helps more if your data room provider has a feature to get a list of all documents uploaded during a specific date range. Look out for that!
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