23, August 2021

The Importance of Virtual Data Rooms in the M&A Sphere

Virtual Data Rooms In M&A

According to the recent Allied Market Research, the banking, financial services, and insurance (BFSI) sector is now the leading industry in the global virtual data room market. Furthermore, specialists predict that it will remain in the same dominant position until at least 2026.

The core reason for such a significant increase is the ever-growing number of M&A companies using virtual data room software. Why are data rooms so important for M&As? To fully answer this question, foremost, let’s take a closer look at what’s currently happening in the global M&A market.

Main trends of the M&A sphere in 2021

After the most dramatic period of COVID-19, many industries hit some unexpected economic turbulence, and most of them are still struggling. Luckily, the M&A sphere isn’t on that list. 

Moreover, as weird as it sounds, the pandemic period has breathed a new life into it. As a result, we’ve been witnessing new trends in this industry. What are they, and how is this connected to virtual data rooms?

  • Hitting all the records

2021 will go down in history as one of the best years for the M&A industry. By the beginning of July, it hit an all-time record, reaching $2.6 trillion in global value, due to EY’s recent analysis.

Moreover, this number surpasses the sales figures of the five years leading up to the pandemic between 2015 to 2019, which totaled $1.6 trillion. What additionally fuels the deal market is SPAC investing. It also set its own record in April 2021 as the value of its total funds reached $101.3 billion.

Now could you imagine this sphere without an online data room implemented? It’s necessary as long as companies take care of providing bank-grade level security while storing and transmitting sensitive data. 

  • A booming number of megadeals 

Companies went big, particularly in sell-side M&A. According to Refinitiv data, 322 deals worth between $1 billion and $5 billion were conducted during the first six months of 2021. Besides, 82 more deals exceeded $5 billion.

Most importantly, according to data from Dealogic, so far this year, 26 megadeals, with a total value of $671 billion, were announced. These results are impressive as compared with the previous year, when for the same period, only 10 megadeals, valued at around $189 billion, were made.

To see a dramatic increase in the total value of M&A deals for this year, let’s check out the value of the five largest megadeals announced today. Warner Media’s merger with Discovery alone is worth $96 billion.

Transacting a huge amount of vulnerable information would take months without data room software. Besides providing a high level of security, it also accelerates the whole process by speeding up each step.

  • Tech businesses acquired by non-tech companies

Yet, at the beginning of 2021, M&A technology experts expected the revenue to grow in the upcoming year. Thus, according to the 23rd EY Global Capital Confidence Barometer survey, almost half of the executives thought so. And right they were. 

Since COVID-19 inevitably changed the global market rules, companies decided to adapt their strategies according to them. As far as currently, every business tends to go online, the number of tech M&A deals significantly increased, especially by non-tech companies. 

Partner at Grant Thornton Bharat, Prashant Mehra, expressed his opinion that such a decision will help companies accelerate their digital transformation. Moreover, he’s sure that it will also improve customer experience.

Such a global market situation confirms yet again that digital solutions are businesses’ choice No. 1. This explains the constantly growing popularity of online data room adoption. Compared to traditional physical rooms, they give both parties of any M&A deal quick and continuous access to all the data. 

Tips for preparing a virtual data room for M&A

  1. Draw a schematic plan of your data room

Before taking any steps towards transmitting the deal data in digital format, make sure you know how your virtual data room will look. Such a simple step will greatly facilitate the whole process and help to prepare for the next stage of gathering necessary documents. 

  1. Prepare documentation 

Once you have a clear vision of your future online data room, you also realize what documents are needed. Making a list of essential files, preparing and organizing them is a crucial part of the whole process. Why?

Because even a small M&A deal requires dozens of files, not to mention large ones. Unless you ensure that document preparation is neat, the next steps will be a mess. 

  1. Select administrators

As soon as you’re sure about needed documents, it’s time to assign administrators, who will be responsible for managing all the actions during the M&A process. 

Depending on the size of the deal, an administrator has to take care of dozens to thousands of tasks simultaneously. To avoid a mess, we recommend having a couple of administrators.

  1. Organize filing system

After assigning people responsible for keeping control over everything in a virtual data room, pay attention to a folder structure. The simpler it is, the faster the whole process will be. 

The main task at this stage is to make each folder and category easy and convenient to use, so that both parties spend as little time as possible searching for the necessary files. For that, add categories to the most important folders and give clear and specific names to subfolders.

  1. Upload documents

At this stage, as the foundation for a data room is ready, you have to transfer only relevant and up-to-date files. There is no need to include documents with little value for a buy-side, such as historical financial documents. All they bring to the process is additional storage expenses.

  1. Keep the M&A data room updated 

If it seems that the essential part of preparing an online data room is behind you, the truth is that it’s far from over. Undoubtedly, all the previous steps will simplify this last one, but it still remains the most complex one. 

During this stage, you always have to check whether everyone from your team is engaged in the process. Besides, make sure that all the info in a data room is up-to-date, relevant, and not duplicated. All of these small things will considerably speed up the process. 

Best data room providers for M&A deals 

  • iDeals Solutions

iDeals Solutions is one of the main leading data room software companies. With its main product, iDeals VDRs, it provides secured online file storage and management services. Its data rooms are used by businesses in various industries, like global banking and deal-making, in more than 30 countries. 

  • Intralinks 

Intralinks is a virtual data rooms provider that ensures secure solutions for online file storing and sharing. The company has a leading position in the banking industry as it provides cloud-based financial technology. However, apart from this, it’s also used in other fields, such as deal-making or real estate. 

  • Datasite (Merrill Corp.)

Datasite develops SaaS platforms for deals in the M&A industry. It provides support and guidance during the whole M&A lifecycle, starting from the marketing stage and to the post-merger integration. Previously, the company was known as a Merrill Corporation until, in 2020, it announced the rebranding.

  • Citrix 

Citrix is a developer of online data room solutions for the IT and telecom industry.  Assisting companies at each stage, it provides them solutions for networking and workspace management improvement. Thus, one of its popular products is Citrix SD-WAN service and Citrix ADC. 

  • Ansarada

Ansarada is an Australian company developing data room software designed for data transactions during M&A activities. Its adoption of artificial intelligence tools and machine learning techniques makes this company stand out in the market. Such technologies greatly speed up processes.

REFERENCES

Richard Harroch. Aug 15, 2016. “The Importance Of Online Data Rooms In Mergers And Acquisitions.” Forbes.

https://www.forbes.com/sites/allbusiness/2016/08/15/the-importance-of-online-data-rooms-in-mergers-and-acquisitions/?sh=47bfcd853566

“M&A Report 2021.” Bian & Company.

https://www.bain.com/insights/topics/m-and-a-report/#

“Deals industry insights.” PWC.

https://www.pwc.com/us/en/services/deals/industry-insights.html

Lewis Dowd. Jul 4, 2021. ““A Perfect Storm”: Record-Breaking M&A, A SPAC Slowdown, Antitrust Action, Media Mega-Mergers And More From A Frantic First Half Of Deals In 2021.” Forbes.

https://www.google.com.ua/amp/s/www.forbes.com/sites/kevindowd/2021/07/04/a-perfect-storm-record-breaking-ma-a-spac-slowdown-antitrust-action-media-mega-mergers-and-more-from-a-frantic-first-half-of-deals-in-2021/amp/

Jim Tyson. Jul 6, 2021. “M&A hit record high during first half 2021: Refinitiv.” CFO Dive.

https://www.cfodive.com/news/ma-hit-record-high-during-first-half-2021-refinitiv/602880/

Luisa Beltran. Jun 4, 2021. “Megadeals Are Making a Roaring Comeback. Why They Lead the M&A Market.” Barron’s.

https://www.google.com.ua/amp/s/www.barrons.com/amp/articles/megadeals-mergers-acquisitions-51622830372

Barak Ravid. Apr 28, 2021. “Tech execs focus on growth amid increasingly competitive M&A market.” EY.

https://www.ey.com/en_gl/ccb/technology-mergers-acquisitions

Mar 16, 2021. “Trend is non-tech companies were buying stake in tech startups recently: Grant Thornton Bharat.” CNBC TV 18.

https://www.cnbctv18.com/business/trend-is-non-tech-companies-were-buying-stake-in-tech-startups-recently-grant-thornton-bharat-8618341.htm/amp

Kison Patel. “How to Structure a Virtual Data Room for M&A Transactions.” DealRoom.

https://dealroom.net/blog/how-to-structure-a-virtual-data-room-for-mergers-and-acquisitions-transactions

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