In the world of mergers & acquisitions (M&A), a data room is an enclosed space containing figures and records pertinent to a business involved in a deal. It’s designed to let potential buyers, sellers or merger partners do their due diligence. Traditionally this was a physical room which representatives from other firms could enter – as long as someone from the hosting company was in attendance to ensure that all documents remained on the premises.
Today, these physical rooms have largely been replaced by virtual data rooms (VDR), online repositories which safely store and distribute all relevant documents. The owner of a VDR can upload his or her data and then grant access to the representatives of potential buyers, sellers or partners. The VDR allows these designees to access the documents, but sets limits on and tracks what they can save, print or otherwise duplicate or remove.
Virtual data rooms offer secure access to information quickly, easily and remotely. M&A transactions have been handled entirely using VDR and a number of companies exist to provide premium VDR solutions tailored to different sorts of firms. But how do virtual data rooms impact both buy-side and sell-side parties and what should buyers and sellers look for in a VDR?
A company that is considering acquiring or merging with another company is said to be on the “buy side” of the transaction. A VDR offers a buy-side firm its own set of unique advantages when researching a potential acquisition. Buy-side representatives should know which VDR services best highlight these advantages, so as to be prepared for the sorts of options available when due diligence begins.
Easy access to data is the first and most obvious advantage offered by a VDR. Buyers no longer have to visit a physical storage space to look into another firm’s history and data. Once granted access, authorized representatives can quickly get all the data they need. VDR services provide easy searching, allowing users to look up data points and other information by keywords and organize spreadsheets using filters. Documents are sorted into categories rather than spread out in assorted physical media, making organized searching easy.
Because VDR software often works in multiple languages, a representative can browse a VDR from a laptop, desktop, tablet or even phone anywhere in the world. VDR software often also includes a question-answer feature, allowing a buyer to have all their concerns addressed quickly. And real-time updating lets buy side personnel stay abreast of all updates and changes the seller makes to their VDR.
Parties looking to merge (or be acquired by another company) are considered to be on the “sell side.” A sell-side company must provide for the buy-side’s company’s needs without compromising its own security or limiting its options. On the sell side, firms should make sure a VDR controls who can access records and that it tracks all views, downloads and printouts. The software should be able to accommodate multiple bidders and last-minute bidders alike, and should significantly lower the seller’s data management costs.
Sellers without a department that specializes in performing this function should not look to construct their own VDRs, as this may waste time and resources. Renting access to the room is preferable, but it is always necessary to perform one’s own due diligence of the prospective rental: Does the rental package include all costs, fees and technical support? Does it offer robust search features and strong security?
Though it’s no longer necessary to have a representative in the room at all times as with physical data rooms, a VDR should still have a gatekeeper/tour guide assigned by the sell-side company to both answer questions and control access to the database. This person should also know and fully disclose to all buyers what aspects of the company and the deal are on the table and viewable in the VDR.
Virtual Rooms, Real Results
The advent of VDRs has led to a much faster, more secure due diligence process than has previously been available in the world of M&A. Deals are happening much more efficiently than in the days of physical data rooms. If all parties remember not to rush into hasty deals because of promising numbers, and to take the human factor which cannot be expressed in a virtual room into account, a VDR will help immensely in smoothing and speeding up any deal.