Deals are complicated and the life of a mergers and acquisitions (M&A) professional is not simple. A typical transaction involves multiple global parties accessing confidential data from multiple locations, as well as significant time pressure from all parties. M&A advisers are responsible for making the deal happen, facilitating the agreement of the parties, and closing the transaction. There is no such thing as a simple M&A transaction and closing a successful deal can rely on how fast and efficient the information is made available. A virtual data room (VDR) can help lighten the burden.
A VDR makes the M&A process easier, enabling buyers to examine the target company’s financial records, contingent liabilities, in-force contracts, litigation risks, and intellectual property issues safely and thoroughly, without the seller risking unauthorized access to the data and tracking all access.
Why VDRs are crucial during an M&A deal
Most M&A transactions involve investment bankers, corporate lawyers, different levels of internal departments, M&A teams and consultants, as well as employees of both the selling and buying company. The role and the level of access of each player differ. Often, a deal starts out with a number of potential bidders, all of whom require access to information. For the seller, it is challenging to keep track of the key people representing each bidder, their access to confidential information, and their level of interest.
Using a well-structured data room allows sellers to:
(i) easily determine which bidders are showing more interest in the transaction;
(ii) comply effectively with regulatory requirements for data access;
(iii) obtain reports of activities performed by each bidder team or user, which are available 24 hours a day in real-time;
(iv) review specific actions by bidders, such as viewing, downloading, or submitting questions; and (v) determine which bidders are progressing faster with their due diligence and make decisions faster as a result.
With technology offering multiple ways to communicate, from email to instant messaging, telephone conversations, and video conferencing, it can be difficult keeping track of every communication relating to a transaction. A data room maintains all engagement records in one place, helping to avoid the confusion of using multiple channels and ensuring the protection of all communication flows. It is a faster, cleaner, and more efficient way to interact with participants, keeping track of the entire communication history.
The data room’s ‘question and answer’ dashboard also separates out the engagements with each bidder team, and once in place, communications are encrypted. The system should also be able to send out notifications when new, highly sensitive information becomes available to all or only certain parties involved, speeding up the process and making it more efficient.
These options enable delegating to one person the management of all communications throughout the duration of the deal, efficiently and securely.
Most large M&A processes are potentially subject to compliance requirements. As part of any due diligence process, it is important for companies to keep records, both while the transaction is live, but also after its conclusion. This adds transparency to the process. In multimillion-dollar deals, it is vital to have detailed records of users with access to information, their user permissions, and importantly, deactivation of access once the deal is concluded.
Unexpected developments occur frequently in a transaction, regardless of how careful both buyer and seller have been to ensure all topics are covered. Bidders could withdraw without warning, or require urgent access for their lawyers or advisers. Whether changes affect users, permissions, access levels, deadlines, or other critical issues, the VDR platform facilitates these and notifies all parties automatically. This helps to avoid delays and the loss of time and money caused by slow communications.
Parties can extend the due diligence period, even after the initial closing date, once they agree to sign. Closure then usually takes place within one or two days, although negotiations could delay the process. Key factors in closing include the preparation of a ‘deal bible’, followed by the eradication of the data. These require cross-checking of all folders and documents with a sitemap, which is a complex process made simple by the VDR software.
How to choose a data room provider?
Choosing the right VDR is essential to ensuring a smooth flow of operations during the process. Some of the factors companies should take into account are set out below.
Ease of use. An M&A transaction is complex and users should not be required to learn a new skill or perform any tasks that cause a time lag. The data room platform should be fast and intuitive enough to optimize resources, speed up the process, and improve efficiencies. The earlier all parties are on board, the smoother the transaction’s progress will be.
Level of service provided. An M&A professional should not have to spend time managing the data room. A good data room service will include a professional team ready to step in and assist the client 24 hours a day in areas such as:
(i) uploading content;
(ii) adding users;
(iii) setting up access groups;
(iv) helping with Q&A submissions;
(v) preparing activity reports.
Behind the technology, there needs to be trained, qualified people. This is crucial for the daily management of the data room to enable dealmakers to focus on the transaction.
Managing an M&A deal is a complicated process involving multiple participants. Last-minute pressures force teams to work intensively in environments that might be emotionally charged. A good data room will help close the deal faster and more effectively, simplifying an M&A transaction.