Objectives of data room M&A deals
Virtual data rooms become the mainstay of the majority of deals and other complex business transactions in any industry. Most commonly used during mergers and acquisitions and other types of corporate and investment banking transactions, virtual data rooms have also found their uses in real estate, legal, life sciences, and pharmaceuticals, education, energy, and other sectors.
Many people misunderstand the purpose of merger and acquisition thinking that both processes mean pretty much the same. But even though the outcome of these processes is the same – join two companies – there are many significant differences between them.
Roughly saying, during the merger, two companies unite their forces. And during the acquisition, one company takes over another. The ultimate goal of both processes is to gain more power to win the competition or to get a bigger market share to increase shareholder value.
But let’s take a closer look at these kinds of deals. On the paper, a merger means that two organizations will merge into one and establish a new management structure. Ideally, the board of directors must be assembled, including members from both companies.
But in reality, equally strong companies rarely merge in a friendly manner simply because it is hard to come to the terms that will be beneficial for both businesses. Also, CEOs of companies are not willing to give up their authority. So here comes the main challenge – to figure out how to make the deal beneficial for both parties.
It requires a lot of paperwork since companies need to understand:
- how strong is their potential partner now;
- what benefits can the potential partner offer the company;
- what benefits can the company offer the potential partner;
- what is the structure of the potential partner’s company.
To find out these details, companies go through due diligence. And this is when virtual data rooms for mergers and acquisitions enter the play. Using them, businesses can meticulously study all the documents. And if more information is needed, parties can fetch it in no time. Also, using the Q&A section and notes, CEOs can discuss details to come up with beneficial terms.
During the acquisition, a more powerful company takes over the less successful business that operates in the same or related industry. This process also requires thorough due diligence, but here a lot of money is involved, too. The acquisition is seen in a negative light since the buyer often forces another company to sign the agreement. Therefore, mergers and acquisition slowly became a single neutral term for the process during which companies somehow unite.
Today the primary tool for M&A is a data room that allows working with documents conveniently and accelerates deals. Using it, participants of the process can see better which terms will be beneficial for both parties. Thus, even the acquisition can have a positive outcome. So let’s talk in details about the advantages of a data room for M&A.
Virtual data room prospects for M&A
During M&A, a virtual data room is a vital instrument that helps businesses to go through deals much faster. It can:
- protect sensitive documents throughout the deal;
- allow sides to study the information conveniently;
- help parties to collaborate efficiently;
- improve the workflow.
Many businesses keep using generic online storages to share their documents, and that’s a huge mistake. Such services are simply not secure enough to trust them sensitive corporate information. And constant episodes of data leaks only prove that they’re not reliable.
Every CEO should remember that the data leak costs a lot of money, let alone the nerves and time the company will waste on this incident. And the worst case scenario is that this leaked data can corrupt the whole business. Therefore, the safety of corporate documents should be the primary concern for all firm owners. It is especially important during deals when the business has to share the information with third-parties.
That’s one of the reasons to use virtual data rooms during mergers and acquisitions. This technology is perfectly secure. VDR providers use the most reliable 256-bit encryption to keep the storage and data transfer ways protected. Also, the service includes many security features that allow users to take control of the privacy of the stored information. Here you’ll have two-factor authentication to keep unauthorized users away, watermarks to protect documents from prying eyes, and other functions.
One of the best things in a data room is that the manager can set different levels of access for users. It works as an additional safety measure since you can allow the third-party only to view the information if you don’t trust them enough. But also, it gives you more space to play during the deal since you can change user rights as things move forward.
Users can access the M&A dataroom from any device at any moment, which significantly accelerates the process. Moreover, when new files are uploaded to the repository or existing ones are changed, everyone gets notifications. Thus, parties can review the changes swiftly, not creating any delays.
The most important part of any deal is communication. Virtual data rooms help to establish an efficient workflow between parties through the Questions and Answers section. Specialists recommend to assemble it in advance, answering all the frequently asked questions. Thus, when the deal begins, the third-parties will already have some additional useful information. And if new questions arise as the process goes, they can ask them in the Q&A section to get a quick answer.
Even though data room software is incredibly straightforward, you can still have some issues with it. Or maybe you’d want some professional advice to get the most out of this service. And it’s easy to get help because all the best data room providers offer a support team that is available 24/7. Therefore, you can ask them to aid you at any moment. Also, the invited third-parties will have full access to the support team as well.