Virtual data rooms (VDRs) are now common in most M&A transactions. In fact, a virtual data room is the best solution not only to perform due diligence but also to store all the information in the due diligence pre-phase and to maintain a site to keep communication in the post phase.
Let's look at the 6 stages of the M&A where Virtual Data Rooms play a key role:
1. Deal Preparation
Being prepared for a transaction is vital for the sell-side company. One of the main areas for this is having all the documentation (such as business plans, financials, board materials, main contracts) in an organized manner so that if there is a sell-side opportunity, the process does not have to be stalled with the documentation.
With a VDR, you can design a unified and straightforward structure for documentation purposes. This enables the involved parties such as lawyers and bankers to populate the data room with the necessary documents ahead of the transaction.
2. Deal Marketing
Traditionally, the marketing stage was done posting a document or emailing a PDF pitch to a number of contacts. This process was very manual, slow, and open to mistakes.
Using a Virtual data room assures you of complete privacy. It also helps you to distribute the marketing document to many people, have visibility about who has looked at documents, and who is interested in the transaction. All this while maintaining the security of the confidential documents.
The negotiation and due diligence stages are becoming more interrelated.
A Virtual data room allows you to track the interest of each party in different parts of the transaction by tracking the activity level of each bidder in each document using its auditing and reporting tools while a good Q&A tool (Question and Answer) provides an exceptional medium to communicate with bidders, giving them answers in the safest and fastest manner and preparing for negotiation sessions.
4. Due Diligence
This is the stage where data rooms play a key role. Here, a data room allows you to provide the relevant information securely to the different parties (accountants, consultants, lawyers) in a secure layered way. Any business due diligence will include due diligence of all business areas.
The increased use of technology to assist with due diligence communication corresponds to the greater focus on the area of IT due diligence generally. Many of the materials important in the due diligence process for a software or technology investment are particularly suited to the use of a virtual data room.
A data room can help speed up the closing process of an M&A. Drafts of final documentation can be shared and commented on using simple and effective version control functionality. Upon signing all disclosure lists can also be produced by the audit function of the data room.
6. Deal Bible
A good virtual data room will offer the possibility to archive a transaction. This archive serves as a deal bible in case the due diligence information and disclosures need to be referred to in the future.
Clients are usually interested in this service as it provides a secure, and always accessible storage for the information that is maintained by an independent third party.
One of the most complicated steps in the M&A process is properly structuring the deal and keeping the information organized for when the deal goes live.
Are you running an M&A deal and need a Virtual Data Room?