Competitive Sale Process
Competitive Sale processes typically require more preparation than One on one deals. This is due to the fact that a Competitive sale process of a M&A requires access for multiple buyers as opposed to a single buyer / single seller situation. The more potential buyers there are, the higher the security and confidentiality requirements must necessarily be.
With the help of investment bankers and legal advisors, the seller prepares a teaser and info memorandum that is sent to potential buyers that are identified in advance. In the past, this was done by creating the document and posting or emailing it in PDF format. This method was fraught with risks, such as losing the document in transit or it falling into the wrong hands. Through the use of a virtual data room, the seller can now distribute the document securely to multiple recipients and obtain a report on who has viewed it for the sake of identifying interested parties.
Before the distribution of any marketing materials can take place, however, terms need to be agreed between the parties. The virtual data room typically has rules and regulations that govern usage of the facility, and these are provided to the client along with the service agreement. At the same time, the client needs the vendor to sign confidentiality agreements to ensure the protection of his data.
Setting up the Data Room
When it comes to setting up the virtual data room, the seller and the service provider work together to determine an appropriate layout and structure for the facility. The data needs to be organized and indexed into a logical system that is searchable and easily accessed by the buyer, as well identifying the various levels of confidentiality.
This part of the pre-due diligence process involves obtaining all the documents required for the process from the seller and collating them. In some cases, this may mean scanning in hard copy documentation, while in others it’s necessary to simply obtain copies of electronic data. Process letters establish the procedures to be followed by various parties in the deal, and these are signed off by the client.
Planning Due Diligence
Planning the execution of the due diligence requires identifying the documents that are to be released to buyers and the sequence of their release. User permissions are set based on the seniority of the various members of the buyer teams, and these govern the levels of access each user has. The permissions are managed through the data room, based on the seller’s criteria.
In the case of a One on One M&A process, the activity in the pre-due diligence phase carries a slightly different focus. The signing of confidentiality agreements is key, because the buyer has a vested interest in protecting the data from potential rivals.
The marketing phase is more about reviewing the info memoranda to decide whether to proceed with the transaction, and if the decision is taken to go forward then setting up the virtual data room and preparing the documentation follows a similar format to the seller-driven/Competitive Sale scenario.
Planning the due diligence exercise is different, however, because the buyer may submit a checklist of documents that they would like to review during this phase.