M&A Due Diligence Best Practices – Accelerating a Deal while Maintaining Security

M&A Due Diligence Best Practices – Accelerating a Deal while Maintaining Security

It is standard practice today for advisory firms to use email to distribute confidential information memorandums or seller’s books when handling a sell-side M&A deal.

Seller’s books are mailed to a large number of potential buyers, and at first glance, emails may seem adequate to share documents. However, beyond simply disseminating information, what professional advisors have been doing is taking this a step up by accelerating the deal process and providing deal intelligence and secure access for their clients. Here is where a virtual data room (VDR) comes in.

A VDR balances the need to speed up a transaction while maintaining security during a disclosure process.

When Marketing a Transaction to Multiple Buyers

Let’s say you are marketing transactions to potential buyers, some who could even be the seller’s direct competitors. In instances like this, it is essential to disclose information that is highly confidential while taking care of sharing access is a controlled manner. With a VDR, granular access for users are set, meaning advisors and sellers control bidder access to documents – so that if the mood changes during negotiations and a deal is called off, sellers can immediately shut down data room access to specific buyers.

Keeping an Eye on Buyer Interest

The audit trail is another feature that is commonly used by sellers. Advisors and sellers have the ability to monitor every bidder’s movement within the data room and gauge interest levels among potential buyers. With this insight, advisors can accelerate the deal process and manage communications with only serious bidders. Extremely sensitive information would be disclosed during the final stages of negotiation when it is clear which bidders are serious about making a deal. Advisors can better manage their clients and close a deal quickly.

According to a report¹ by the Austria-based Institute of Mergers, Acquisitions and Alliances, a VDR has definite advantages for:

  • Larger transactions
  • Auction-type processes with a large number of potential buyers
  • International and cross-border transactions
  • Transactions in which a limited period exists for due diligence

The use of VDRs have become a standard best practice among capital market professionals in the U.S. and European M&A markets over the past 6-7 years and is gathering momentum in Asia. With Chinese companies looking at closing M&A deals worth over US$100 billion in 2016, we expect a busy rest of the year ahead.

References

Do virtual data rooms add value to the mergers and acquisitions process? Dr. Christopher Kummer and Vlado Sliskovic, IMAA Institute (2007)