In this article, we will discuss the role of virtual data room during M&A deals.
VDR data room – the best alternative for M&A deals
Initially, Virtual Data Rooms were created as an alternative to physical data rooms for due diligence in M&A transactions. Before the era of the spread of broadband Internet access, familiarization of potential participants in the transaction with the documents looked in the following way:
- The seller allocated or rented one or more premises in which folders with paper documents were demolished, and recorded in the expense item the rent or lost profits from the misuse of the premises.
- A schedule was drawn up for visiting the room and working with documents for potential buyers (bidders), which significantly increased the time of the transaction with a significant number of them.
- If the bidders were from another city or country, their representatives happily went on a business trip to world cultural centers and reluctantly – to industrial regions, spending time on the road and money on increased travel allowances.
Actually, the virtual data room just solves the problem with time, cost, and ease of access to documents.
Currently, virtual data rooms accompany the activities of companies in other areas, from providing information to partners of investment funds to obtaining certificates for medicines, that is, wherever it is necessary to provide convenient access to confidential information for a certain period of time to a certain circle of people who may be friends.
The purpose of using VDR
The volume of M&A transactions in the world exceeds $ 3 trillion annually. At the same time, a significant part of the agreements on mergers and acquisitions fail. There are several main reasons for M&A failures, the first among which is the poorly performed Due Diligence procedure. Preparing for a deal is a difficult and responsible process, on which the further existence of the business subsequently depends.
The seller must organize the collection and preparation of documents for the due diligence of the company. The main goal is for the Data Room to be clearly structured and complete. This organization of the information room makes it easier for the buyer to conduct verification and increases his degree of confidence in the seller.
The buyer must inform the seller of their expectations regarding documents and information to be disclosed in the information room. Prepare in advance the request for documents and information required for the verification, and send it to the seller as soon as possible.
Almost always there is a problem associated with the disclosure of documents containing trade secrets (prices of suppliers and buyers, rental rates, etc.). Such documents can be transferred last, immediately before the signing of the binding documents for the transaction.