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Introduction

Deals for acquiring or merging with another company are typically complex and time-consuming, involving several different parties on both sides of the deal and a huge amount of information to examine and analyse. Successful outcomes to M&A deals largely depend on the quality and availability of information to base decisions on, and clear and transparent communication with the other parties involved.

Access to comprehensive company information permits analysis and understanding of the risks and opportunities inherent in any transaction. For all parties, due diligence is the crucial stage in the M&A process. Poor due diligence can result in delays, failure to conclude a deal, or the risk of a bad deal being made.

Due diligence

Due diligence is the process of verification and investigation to confirm the information needed to make decisions and is pivotal to the success of M&A deals.

Effective due diligence requires the efficient preparation and presentation of all relevant information in an organised and transparent manner. This instils trust on both sides of the deal and can improve its speed and smooth running. A thorough examination of the other company’s key information enables an assessment of strategic fit, an accurate valuation, and an appraisal of the risks and opportunities of going ahead with the acquisition or merger, or whether to negotiate new terms or walk away.

For these reasons, a Data Room is essential for the rigorous due diligence that reduces the risk of M&A failure.

Data Room

A Data Room’s facilities make it ideal for conducting the due diligence necessary for M&A deals. A Data Room, also known as a Deal Room, is a secure, safe place where information vital to an M&A deal can be stored, shared, reviewed, exchanged and edited by pre-approved participants to the deal.

A Data Room provides selling companies the secure online space to store, organise, add, and update their important and highly confidential information, efficiently and cost-effectively. Buyers and their advisers can easily search and find relevant documents. Additionally, a Data Room enables productive collaboration and dialogue between all parties in one central, secure place.

Until relatively recently due diligence was conducted in a physical room where potential buyers and their advisers would come in person to inspect the selling company’s hard copy documents. These rooms have largely been replaced by virtual Data Rooms. Virtual Data Rooms reduce the time, effort, and cost of preparing and managing and inspecting documents.  Potential buyers, who have permission, can inspect these documents from anywhere at any time without the costs and difficulties of having to do so in person. The selling company has full control over access to the Data Room and how documents are used.

The widespread and increasing use of virtual Data Rooms in M&A activity demonstrates the essential role they now play.

The advantages of using a virtual Data Room in M&A deals

There are many clear advantages in using a Data Room to facilitate an M&A deal. Below we look at some of the main benefits.

The security of information: Protecting highly sensitive and confidential information is integral to the success of an M&A deal. Security breaches, data leaks, and uninvited viewing or sharing of information can terminate the deal and cause serious brand reputational damage. A virtual Data Room guarantees the security and safety of information through several advanced protection mechanisms. These include data encryption, two-factor authentication, watermarking, and preventing actions such as copying, downloading, printing and forwarding of documents without permission. A top-of-the-range Data Room guarantees protection from threats posed by hackers, viruses and third parties by compliance with international standards such as ISO270001.

Access control: A Data Room provides full control over who has access to it and what documents can be inspected. Rigorous permission protocols allow only pre-approved deal participants access to the Data Room where they will be permitted to view all or a subset of documents.

Activity control: Inside the Data Room participant activity can be closely monitored: who has been in the Data Room and when, how often and how long for, what they looked at and for how long. This provides valuable information about the intentions and degree of seriousness of participants and can prompt dialogue between the parties. Data Room technology provides activity reports so that this information can be collated and analysed.

Efficient collaboration: A Data Room enables potential buyers, sellers, and advisers for both sides to share information and communicate easily from anywhere at any time, simultaneously when necessary. Centralised and secure interaction within the Data Room increases transparency for all parties and removes the necessity for having to communicate via emails and texts, which pose serious security risks for sharing confidential information, and minimises the need for meetings and telephone calls. There are options for Q&A sessions, private and group chats to facilitate fact-finding and negotiations and to provide valuable feedback. Interacting with multiple parties necessitates this level of organisation and transparency to avoid miscommunication and errors that can delay and jeopardise M&A transactions.

Task management: M&A deals require a great deal of participants’ time and effort to succeed. Data Room task management tools remove many of the more tedious, time-consuming, manual tasks. Documents can be uploaded into the Data Room in bulk and easily structured to simplify the search process. Q&A sections can answer commonly asked questions and alerts can be set-up for delegating responses to more specific questions. Tasks can be assigned to team members to help progress the transaction.

Focus: Data Room functionality enables all parties to focus on the main goals of the deal without the distractions and worries about security or how best to communicate and collaborate. This makes the M&A due diligence process far more manageable and efficient.

The value of a Data Room

A Data Room provides a safe and reliable space for all interested parties to review and exchange documents as they engage in due diligence and negotiations. A Data Room adds considerable value to M&A transactions by increasing efficiency, organisation, transparency, and productivity, thereby making the deal process faster and smoother, and more likely to succeed.

You can visit our website to learn more about Perivan’s market-leading Data Room, Engage. If you would like to see how Engage can solve your Data Room needs, contact the Perivan team who can arrange a demo and answer your questions.