Merger and Acquisitions (M&A) deals are pivotal, as they ensure that a company or its subsidiary is sold for the highest consideration while ensuring the continuity of the company and retaining the existing human resources. On the other hand, M&As may involve liquidating a company, either to be integrated as part of the ‘buyer’ company or become a new company merged with the acquiring company. 

The purchasing party uses M&A as a strategic financial investment for long-term profit in the most transparent manner. M&A transactions help to facilitate expansion, reduce overcapacity, enter into new markets, and diversify product ranges, amongst others.

What is M&A data room

The M&A data room is important to give the acquisition due diligence team access to all the necessary confidential documents to facilitate the process while keeping it from the reach of unauthorized persons. The data room allows buyers to review the documents to ascertain if the deal is a worthy investment, by evaluating, analyzing, and determining the profitability of the business.

Understanding M&A procedures

M&A transactions start with the preparation stage, followed by the pre-due diligence, then the due-diligence stage, the negotiation stage, and the final closing stage of the deal. These stages mean different teams for both parties, for the seller work is done in regard to:

  • making a strategic review
  • preparing the business plan
  • selecting the external advisors
  • evaluating what assets of the business would be up for sale
  • refining the presentations to be used
  • compiling all the required data for due diligence

After this, they move on to contact potential buyers, set up data rooms, obtain offers, prioritize interested parties, set the deadline to receive offers, go on to compile offers, and select the best. The data room is then terminated, and the deal is closed.

Although the due diligence process in M&A transactions varies across many businesses and industries; the procedures, however, are similar. Both sellers and buyers alike have different expectations in an M&A deal. 

Buy-side and sell-side M&A Process

M&A sell-sideM&A buy-side
Make a strategic reviewDraft their M&A strategy
Prepare the business planPick external advisers
Select external advisorsMake a list of targets based on research and decide which to approach
Evaluate what assets of the business would be up for saleDetermine if a potential target is a fit based on goals
Refine the presentations to be usedApproach the seller
Compile all the required data for due diligenceSign an agreement on confidentiality
Contact potential buyersCompile all necessary data
Set up data roomsInspect the data room
Obtain offersReview the confidential documents
Prioritize interested parties,Evaluate the risk and returns
Set the deadline to receive offersNegotiate
Go on to compile offers and select the bestMake the final offer
Terminated data room and close deal.Due diligence team is resolved

M&A data room benefits

M&A data rooms help to ensure a seamless due diligence procedure. In the case of a merger, both sides need a data room for due diligence and both must be set up for assessment and exchange of data by the due diligence team. The data room allows critical documents to be perused for equitable considerations, founded upon variable operational and financial factors.

The team can inspect all documents to detail, and gather all required documents necessary for the M&A deal. A data room serves as a secure unit for storing confidential data from unauthorized access as well.

M&A data rooms can be physical or virtual. Virtual Data Rooms (VDRs) are beginning to gain the interest of many due diligence teams and external advisers over Physical Data Rooms (PDRs), as they can save your business time and cost, and prove to be more efficient.

With an online data room at hand:

  • It will be not so challenging to evaluate your future company’s potential liquidity and financial capability;
  • You will have a much clearer picture of your capital;
  • It will be easier for you to outline and choose a personal strategy;
  • You will be able to ensure a safe and secure exchange of important information;
  • You will have fewer organizational difficulties because you won’t need to travel to a data room office. There is an option to access data from any gadget, wherever you are.

Virtual data room services act like websites, which clients can visit any time and manage their documentation. They are free to use in different ways to secure documents against unsanctioned access, viewing, copying, and distribution. Partakers do not face any restrictions when they access documentation stored in online data rooms.

Why businesses use VDRs for M&A

In today’s world more and more people are seeking different ways to get work done faster, effectively, and for less cost. An M&A virtual data room helps a business to achieve all of these goals for less, hence helping to close deals more quickly and profitably. Here are some of the reasons why businesses need a virtual M&A data room:

Digital operation

Digital tools help both the buy- and sell-side to get more work done in less time. A detailed process like M&A should not be operated manually from start to finish especially when a large amount of data is involved as it would only give more room for human error, which may be hard to trace. A virtual M&A data room will help the due diligence process to go on seamlessly while leaving little or no room for error. Furthermore, the system is structured in such a way that errors can be traced within the system, anywhere it occurs. 

Global access

The goal of any business undergoing an M&A transaction is to reach a large pool of high-profile targets, for the merger or acquisition process. A physical data room would impose transportation costs and limit the scope of potential targets and investors where distance is a barrier. A virtual data room will allow for global access, and eliminate locational barriers on potential targets and investors.

Digital document format

VDRs allow for documents to be handled in digital format, eliminating the need to move or make copies of confidential documents for the M&A process. This way, it reduces the risks of documents falling into the wrong hands while ensuring strict user-only access to the digital formats.

Central server for data storage

A virtual data room will serve as a central data storage, and there will be no need to start compiling documents in a data room from scratch when the need calls for it. It allows essential data to be stored in a secure cloud-based system and eliminates the risk of loss due to hazards.

Parallel access

The VDR allows for parallel access, where potential targets or investors seek access to the data room to conduct due diligence. It eliminates time constraints and the need to wait for others to use the data room before accessing it. All interested parties can have access to the data that concerns them, in real-time, once given the access.

Time and cost-saving

Overall, the M&A VDR is cheaper in terms of cost and saves more time than an actual physical data room. It reduces the time-lapse required for a physical due diligence process allowing teams to work from their comfort zones for less, and, in turn, ensuring a productive result for the overall effort.

What to consider when choosing a virtual data room provider for M&A

There is a number of reputable data rooms, who provide high-quality M&A in Hong Kong. This region is one of the world’s biggest business clusters, and most companies headquartered here seek the best data rooms to find high-quality services.

To choose the best virtual data room provider for M&A you need to consider the following:

Customer support

You need all the help you can get throughout the M&A process and at any time of the day. Your VDR provider should be able to promptly respond to complaints timely and effectively. It should as well be available to train new clients on the use of the VDR, before and during its use, however applicable.

Free trial/demo

Data room providers for M&A due diligence, understand the importance of providing a need-specific VDR. Hence look out for those who offer a free trial option, so you can ensure the design of the VDR fits your M&A needs. 

Long-term deal management

Choose a VDR service provider that incorporates the lifecycle of the entire project. It must be able to incorporate the entire project pipeline, not just parts of it. This makes workflow and team collaboration effective, internally and externally.  

Fair pricing

VDRs are about cutting costs on M&A deals. Choose a VDR provider that is transparent in their pricing giving you value and quality services for your money, while ensuring your data is secure.

Safety certification compliance

Your data must be safe and secure. Its security must be vetted by the ISO and must be ISO:20071 accredited.

User management features

User management is important as the M&A involves confidential documentation. Only those, who have special access, should be able to view certain files that are specific to their roles in the due diligence process. Also, it should ensure the audit trail of the document can be monitored, for transparency and decision-making.

Intuitive user interface

The VDR must be intuitive enough to understand for all users of the M&A VDR. The interface must be easy to navigate and understand while loading all required information promptly.

How to structure a virtual data room for M&A

The structure of the M&A data room is logically organized folders and subfolders with relevant business information. Typically, the data room for M&A has the following first line folders:

  • Corporate information
  • Financial information
  • Tax Documents
  • Sales and Marketing
  • Intellectual Property
  • Employment Information
  • Agreements
  • Legal and Insurance Information
  • Environmental Policies

You must introduce your potential buyers to the viability of your business using your VDR. It should pitch your business to potential clients without compromising on confidentiality.

The next step is to ensure that they sign a non-disclosure agreement, before accessing other confidential documents, and providing vital information about the overall business operation. Then interested companies can send in a letter of intent, which you’ll then review and determine viable prospects, for the due diligence process.

Other tips to note:

Ensure that the documents open easily and can be viewed in all popular viewing tools and applications. Finally, there should be options that you can adjust to rule out the unsanctioned use of data.

The importance of data room software in M&A transactions

Nowadays, M&A transactions are one of the key functions performed by virtual data rooms (VDRs). M&A and due diligence procedures are required when one company is purchased by another one, or when two companies consolidate into one. This is a set of complex transactions, and each one must be regarded closely and professionally. For example, prior to actually getting down to the procedure, each company (partaker) must be thoroughly analyzed and investigated to ensure that everything is according to the law, and no party will end up with its interests violated.

As follows from the above, due diligence in M&A a number one aspect. Those are the activities aimed at verifying participants’ legibility and the legitimacy of their previous and current activities and intentions. No contract or agreement can be signed without the procedure.

M&A and finance research are complex matters. They require thorough research of information on both partakers, as not the smallest aspect should be missed. There are tons of factors, which must be taken into account, such as the following:

  • Local tax and corporate law;
  • Security regulations;
  • Accounting policy;
  • Financing procedures and strategies;
  • Specifics of negotiations;
  • Competitor bidders;
  • Market conditions.

These and many other factors should be monitored closely during the M&A procedure. Until recently, it was long, routine and gut-wrenching.

How VDR helps to conduct M&A

VDRs help to facilitate the due diligence process in an M&A transaction, dynamically and seamlessly. Initially, the VDR is set up to make all the required documents available digitally based on the client’s need. The ‘buyer’ due diligence team is then trained on the use of the VDR via a conference call/video.

The VDR is set up in such a way that every document uploaded is properly indexed, and last-minute uploads can be made without disrupting the indexing of the order of the documents. It further allows for unique interactive features that make due diligence easy such as search, Q&A, monitoring audit trail, watermarking documents, and restricting access and use of documents.

Documents can be easily searched to find specific keywords. The due diligence team can effectively ask questions on the system where necessary and get responses promptly just as the case would be in a PDR. It also supports making a quick reference to a specific document in question during the diligence process.

Furthermore, VDRs enable a transparent M&A process, as document history, use, and other interactions can be tracked easily. It makes it easy to profile interested targets based on their depth of interaction in the VDR.