18, April 2021

Maximizing the Virtual Data Room for M&A Transactions

Virtual Data Rooms (also known as Virtual Deal Rooms), exist as an online database that is extremely secure as a means to store and share multiple confidential documents that will be required during the M&A process.

VDRs are commonly used by businesses when they engage in merging, combined projects, or other joint ventures that require access to shared information. The M&A process is a great user of the Virtual Data Room.

Steps to preparing a virtual data room for an M&A transaction

A very well-structured M&A virtual data room provides participants in the M&A process with fast and effective access to the most up-to-date data available. This is to ensure uninterrupted distribution of information.

The virtual data room then has to be logically organized for maximum effectiveness. Here are some steps that can be employed to achieving this.

data room m&a

1. Folder preparation

This step empowers teams to change, retrieve, access, and classify documents and folders all within a central platform. Systemically arrange documents from regular to highly confidential documents by creating different folders with limited access, depending on the type. They can be arranged in this format—market package, financial, legal, HR, private and confidential.

2. Managing access and permissions

Engaging too many people and granting out freehand access to data increases the risks of damaging data leaks, both inside and outside the company.

For every permission that is granted, there’s a decrease in the stronghold of confidential data. Here are some advanced tips to maintain confidentiality of classified documents:

  • Assign constrained access to the buyers
  • The Human Resource folder should not be shared outside the department
  • Undecided financial transactions should be shared with heightened limits

3. Uploading up-to-date documents

Documents must be updated regularly, obsolete documents that are not financial statements are often of little value to the M&A process. Therefore, if they’re still occupied in the virtual room, they oppose the systematic arrangement and cost the company money.

4. Continuous engagements with the VDR

Constantly engaging with the virtual data room not only avoids such value-destroying scenarios but also ensures that your team develops a structure for the data room that works well for their other requirements going forward, avoids duplication and old files to ensure a much faster process.

The merger and acquisition process for using virtual data rooms

VDR creates an overall simplified M&A process when compared to physical data rooms. Specific stages of M&A where VDR plays a vital role include negotiations, due diligence, purchase and sale contract, closing and post-closing. Here are some ways in which VDR can improve M&A stages:

data room m&a
  • Negotiations: Within the M&A data room, sellers can grant permissions to the buyers with a feature that allows open negotiations in a coordinated manner. VDR allows sellers to create an offer and both parties can then negotiate the terms stated in this offer.
  • Due diligence: VDR affords potential buyers the opportunity to conduct appropriate research about the company to be acquired/merged. With VDR, buyers can review crucial documents about the target and estimate potential risks and losses.
  • Purchase and sale contract: In this process, the virtual data room allows for enhanced connection with Merger and Acquisition contractual transactions, to simplify the extensive due diligence process particularly carried out by the buyers for the purchase of company or other entities.
  • Ask Potential Buyers: Individuals who are potential buyers can also ask questions in a controlled and confidential environment through the VDR to the seller, therefore, helping to develop interrelationships between the parties involved in the deal.
  • Prepare documents: One of the foundational purposes for the VDR in M&A processes is the function of preparing documents. Editing of documents, keywords inclusion for searching files, and intelligent file indexing, have been developed for seamless documentations overtime. It allows text in scanned documents to be recognized by a computer program, effective for searching, spell-checking and unique identifications.
  • Distribute responsibilities: The virtual data rooms in the Merger and Acquisition processes are not just used for the due diligence, they allow delegation of responsibilities in the team to ensure the uniqueness of the data. Access to confidential documents are streamlined to handpicked personnels who have assigned similar assignments.
  • Develop an acquisition strategy: The compilation of the improved features and functions creates an efficient and a faster acquisition procedure, leading to a suitable agreement as parties are knowledgeable on their positions accordingly. This process also allows the seller to quickly come to a decision on who would be considered the most appropriate buyer.
  • Closing: The resources needed to carry out an acquisition through a VDR are smaller than ever before. The competence developed as a result of continuous assessment theoretically leads to a shorter time required to complete a transaction.

Some M&A data room providers allow buyers to ask sellers questions related to the data room and its contents, securely and efficiently. VDR users may ask questions through the VDR screen interface by clicking on a ‘Q&A’ icon.

Checklist on how to set up a VDR

Irrespective of the virtual data provider you make use of, here’s a straightforward checklist that’ll help you in setting up a VDR for an M&A transaction:

data room m&a

1. Pick a VDR provider. It is important to select an efficient data room provider before you can begin to sort out documents and due diligence. Because of the existence of various virtual data room providers, it is advisable to review and examine the pros and cons of each selected VDR. You can make use of virtual data room vendor review sites and VDR comparison charts for this purpose.

2. Request a free trial. Most reliable VDR providers offer a free trial, from 14 to 30 days — which is right enough time to get a hold of the platform’s compatibility.

3. Set up groups and add new users. Creation of groups and additional users is important to maintain the confidentiality in M&A transactions. Administrators can set file requests and other permissions. With the groups, administrators can control the activities of members. Users that are not administrators are only allowed to see the members of the groups that they have access to.

4. Set and request file permissions. This feature allows administrators to turn on and off different request settings. It controls the uploading of documents or requests, and the approval for downloading any file, document or video or even make edits. In addition to this, administrators can also give another group administrator access to certain things and set permissions for group members, parent folders, and more.

5. Add documents and files. This ensures the classification of document tab’s content, allows teams to transform, retrieve, and classify documents and folders all within a central platform. The word document and excel features allows the user to carry documents or file arrangements without having to leave the platform.

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The M&A data room allows the selling and the buying company to exchange valuable information in a controlled and hassle-free manner. There are many M&A data room providers on the market. A couple of these include iDeals, Intralinks, SecureDocs, Caplinked, Fordata and Datasite. Not depending on the solution you choose, don’t hesitate to rely on it for the smooth, secure, and convenient M&A process.