What is data room in M&A?
Companies around the globe go through mergers and acquisitions every day. However, it doesn’t mean that this process becomes any easier. In fact, considering that the amount of data is growing all the time, it gets even harder to maintain all the information during M&A. And since the rhythm of modern life doesn’t stand any delays, businesses face another challenge – to exchange the documents and make decisions as quickly as possible.
Fortunately for all of us, we have the technology that can help companies to accelerate processes and protect the corporate documentation from theft and corruption. It is called a virtual data room – a safeguarded cloud repository that allows storing and exchanging the files. Moreover, this service brings other useful tools that can improve communication.
Benefits of M&A Data Room
How does virtual data room help dealing mergers and acquisitions?
- Corporate Information Security. Virtual data room providers for M&A work hard to make their software secure. They safeguard the repository with the strongest encryption. Also, they implement additional safety features like two-factor authentication and different level of access. Moreover, businesses can apply watermarks on the documents to protect them from unauthorized use. And the fence view feature allows viewing sensitive information in public places.
- Easy collaboration. The main advantage of the M&A deal management software is that it makes the collaboration between parties much easier. In a virtual data room firms can interact with potential partners or buyers via a Q&A section and notes. The Q&A section is the most powerful collaboration tool virtual data rooms for mergers and acquisitions have. Here participants of the procedure can ask questions that arise as the deal moves forward and get answers quickly. And since everyone else can see them too, the CEO will never face the need to explain the same information again and again. Specialists recommend businesses to assemble the Q&A section in advance, gathering all the frequently asked questions with corresponding answers. Thus, as invited participants enter the M&A virtual data room for the first time, they already have plenty of information to work with. Leaving notes on documents, participants can discuss certain details that relate to the specific file. Also, users can highlight particular paragraphs to draw the attention of others to this information. While these tools might seem insignificant, they are highly useful during mergers and acquisitions.
- Communication with multiple partners at once. The best part of holding M&A in the data room is that the seller can work with several potential buyers at the same time, and they will never know about each other since invited users can’t see other invited users. The administrator though can see every action of every third-party. Thus, the business owner can get more valuable insights on how to act in the future and what partner will be the best for the company.
- Setting access levels for each invited user. The invited third-parties can access the M&A data room from anywhere at any moment and review the information conveniently taking as much time as they require. This software makes the whole thing more comfortable. And since the deal room is so effortless to enter, invited users to get more chances to finish the paperwork within just a couple of days.
- 24/7 access to documents. Round-the-clock access to M&A online data room is a significant advantage for partners from different countries. Each side can work with documents at a convenient time for them, according to its time zone or schedule. Secure access significantly reduces the number of physical meetings and time to conduct due diligence.
- Process progress reports. M&A data room software provides an opportunity to set the task and track the execution progress. It is useful especially in providing due diligence online. The progress line shows how many documents have been analyzed, how much is left. Many providers of data room software offer a notification feature that allows the administrator to manage when will the users get notified. The notifications are sent via emails and allow third-parties to react quickly to the changes. You definitely want users to receive notifications when the new document is uploaded. Also, alarming others when something in the uploaded file is changed can be useful as well.
- User Activity Tracking. Besides all these handy functions, there is one more reason why you should use a virtual data room for due diligence instead of physical online storage. Mergers and Acquisitions data room makes it possible to look at user activity, the number of document views, the time spent on studying the documentation. Such analytics helps to define the engagement of potential partners.
- Online due diligence. It is a necessary part of every merger and acquisition. And of course, it impacts the swiftness of the whole deal – the faster parties review each other’s papers, the sooner they can discuss the details and make the decision. Therefore, the acceleration of due diligence should be among the primary goals for every business. Online Due Diligence management with VDR is quick and simple, even if the deal involves a huge pile of papers. A virtual data room software makes the whole process easier for both sides. The business can assemble the dataroom once, adding all the files, and then upload additional files as needed. Thus, the manager doesn’t have to start over again before the next upcoming event saving time and costs for the company. Also, it lowers the risk of documents getting lost – all of them are stored in the secure repository perfectly organized.
Who uses Data Room Software for Online Deals
A virtual data room for mergers and acquisitions is used by everyone who needs the secure exchange of confidential information, saving time and transaction costs. The owner of a small restaurant in Texas or the top manager of a large corporation uses M&A virtual data rooms, as this is affordable and very flexible business software. A virtual data room is a product that is installed individually for each customer, depending on the needs, duration of the transaction, and the size of the business, that’s why the price is always profitable.
- Define the acquisition strategy. There are several reasons because of which the company decided to enter the merger and acquisition deal. Depends on which, the future strategy is developing. At this stage, sell-side and buy-side companies develop define business goals and determine the timelines. In order to prepare the right strategy, the managers should consider their own financial statements, assets and liabilities, market conditions, and others. The company’s presentation of a clear strategic plan of action dramatically reduces the cost of analyzing random opportunities, which are immediately rejected if the pre-agreed criteria describing the company’s strategy do not meet.
- Develop M&A search criteria. On the basis of the previously defined criteria, managers form a funnel of potential partners. The clearer the criteria for selecting candidates, the more effective managers use time in the negotiation process. Forming the features list for candidates is considering the company product or service, customer base, business size, culture, reputation on the market, sector, size, geography, profitability, etc characteristics.
- Install M&A data room software. Set up and customize the mergers and acquisitions data room to share the confidential information, provide business communication, online due diligence, and effectively cooperate with participants. It is necessary to organize the VDR for M&A before the initial contact with potential partners in order to successfully manage sell side m&a process and buy side m&a process.
- Search for potential companies. Perform a brief evaluation of the potential target companies and select the potential acquisition candidates that are ranked according to their compliance with the company’s strategic development criteria.
- Start acquisition planning. After the determination of the list of appropriate candidates, buy-side M&A sends the Letter of intent (LOI) to the sell-side in order to learn more about the intentions, needs, and proposed offers. M&A sell-side examines the information about the buy-side in order to define the business opportunities of buyers after what the M&A sell-side shares with financial statements and sends the invitation in M&A data room for providing the due diligence process. * LOI – Letter of intent is a document in which potential partners provides a short summary about the proposed deal and describe the intent of formalizing in a legally binding agreement the activity between two or more parties.
- Perform valuation. On this stage, both sides use M&A data room for uploading and structuring all the necessary documentation. The companies just need to confirm the absence of problematic issues in the company’s activities, as well as find out any details, etc. Both sides evaluate the potential partner and make a decision to pursue a deal.
- Negotiate the agreement. During the negotiations, the companies request for information in order to determine the intents of both sides. After what they develop and sign “term-sheet” in which they agreed on the goals and main parameters of the transaction, assigns certain obligations. Before providing complex company analyzes, both parties develop the draft a final deal and nondisclosure agreement. Depends on business size, a sell-side company can provide potential partners analyses themselves, or invoke the external expertise which should also be required by legal agreement.
- M&A Due diligence. Companies provide the comprehensive assessment of the target company (financial, operational, legal, environmental review, strategic, cultural aspects, risk analysis) using data room M&A software that ensures the effective process of assessment of the highly confidential data. As it is the pre-final stage, the process of analyzing all company’s assets plays a decisive role in the Mergers and Acquisitions due diligence process.
- Final board conclusion. When both the side were successfully provided audit process and decided to sign the contract, there is provided final board approval meeting.
- Agreed purchase and sale contract. The final phase of M&A see-side workflow during which companies take documentary responsibility through the signing of all the contracts, agreements. Integration begins after the signing of the convention. After the signing of the contract, the deal is considered closed.
- Financing strategy. After the purchase and sale agreement has been signed the details of financing typically come together.
- Integration. It is the final and complex stage of M&A process during which two or more parties should integrate into one holistic organization.
Reasons why companies enter M&A deals
- Synergy. One reason that companies participate in mergers and acquisitions is to grow the value of the company by merging several enterprises. The business might decide that it’s more likely to sustain or grow its competitive advantage if combined with a strategic acquirer.
- Diversification. Expanding the range of products or services helps to stabilize the company’s revenue, reduce corporate risk, enter the new market.
- Bankruptcy. This is one more reason why some owners go to mergers and acquisitions deals. To find the buyers that will be interested in acquiring a company can be the best option for companies that are on the verge of bankruptcy. In the case when the company cannot resolve business issues on its own, they often decided to through a financial or operating restructuring.
- Underestimation of the absorbed company. The market may underestimate the value of the acquired firm or the benefits that the acquisition of the firm will provide. Some companies acquire assets below their replacement cost.
- Improving management quality. In some cases, there are Internal disputes or board management disagreements that cause crises or for searching for other ways of business development. There are cases when owners who are in conflict decided to sell the business.
Virtual Data Room Providers for M&A deals
There a lot of digital data room providers on the global market. Due diligence in the mergers and acquisitions process is a time-consuming and complex process that can be facilitated by using M&A data room. In order to choose the right one VDR for your business needs, it is necessary to compare virtual data room vendors and discover the availability of needed features. VDRs can come in handy not only during standard activities like due diligence or M&A. For instance, real estate companies can apply this technology in their everyday workflow. Using the M&A virtual data room, they can share property plans and pictures with potential buyers. This approach will save a lot of time for both sides since the buyer can see the property in detail and decide if it is worth buying instead of actually going to the place simply to understand they don’t like it. All the agreements also can be signed in the virtual data room.
This service is a great help for life science companies. Organizations in this industry have to exchange extremely sensitive data almost every day, collaborating with others, and getting licenses. An online deal room will become a safe environment for such firms where they can share and store the information without the fear of data leak.
Law firms can also benefit a lot from data rooms. They can keep valuable documents here and share the papers with clients to keep them updated on the processes. Also, the deal room makes it easier for a lawyer to work with client data.
In general, any process that involves papers can get improved with the data room. Just don’t forget to check if the vendor supports the licenses you need.