Although the data is hard to pin down, the body of research suggests that around half of mergers and acquisitions fail and fail to add any value. While this might make uncomfortable reading for any company about to undergo the M&A process, it is a timely reminder of the importance of the due diligence process and undergoing a thorough audit and evaluation process before anything is signed.
Penta discusses with EthosData how a startup organizes a seed round. Penta is a German digital-only bank for startups and small and medium entreprises, raised early this year a €2.2M seed round.
Only around 50% of M&A deals actually go through according to Forbes magazine. The main reason for that high failure rate is that the companies acquired looked better on paper than they actually were. This makes a well executed due diligence process critical, which is only possible if the full M&A life cycle is properly executed.
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.
Physical data rooms are quickly being replaced by virtual data rooms, partly because of the complex procedures that are necessary to protect the information held in these rooms. Having confidential deal information in a specific location means that the parties in a deal need to travel to and from the location each time they view documents, which also results in high costs associated with transport, accommodation, premises and security. Another complex issue is the on-site management of the venue, which needs to be restricted to only those who are essential to the due diligence process. Use of Virtual Data Rooms has considerably evolved over the years over its Physical counterpart in many ways.
Let’s take a closer look at the procedures involved in using a physical data room.
Once you’ve identified your
virtual data room vendor, the deal enters the pre-due diligence stage. This includes putting in place the infrastructure needed to facilitate the due diligence process, prepare the documents and sign the required agreements between the client and the data room vendor. The steps in this phase depend on whether the process is seller-driven or buyer-driven.
The wide adoption of Virtual Data Rooms has been fundamental in the reduction of deal leaks, the two words that can spell disaster for a high value deals. The ability to track every user’s movements within the dataroom, remotely block access to users and call on this information at a later date has all contributed to more secure deals.
Whether it’s careless employees, malicious competitors or hackers you are protecting information from, there are steps that are increasingly being taken in the industry to prevent leakages and we will guide you through these below.
The use of virtual data rooms has dramatically changed the way transactions are executed. There was a time time was when you had to travel to access a physical data rooms, check piles of papaer documents and meet with other parties involved in the due diligence process. Depending on the location of the participants, this could mean air or train travel, driving long distances or taking public transport. A venue had to be found, binders had to be prepared with all the documentation and often, admin staff were necessary to record the minutes of the meeting. In the case of long meetings, food and drink also had to be supplied. All this required time, effort and money, and all you needed was for one party to be delayed or unable to attend and to throw the whole process out of sync and delay the overall transaction.
