Advantages Provided by Virtual Data Rooms

Richard Martin

Fueled by glo­balization and advanced tech­nology, business transactions are being complet­ed at a record pace, and virtual data rooms are proving to be essential to the process. By significantly reducing deal time and providing both buyers and sellers with better information man­agement tools, virtual data rooms have increasingly allowed M&A profession­als to more quickly and efficiently re­view the relevant business information that facilitates transactions around the world

A virtual data room, or VDR, is the electronic equivalent of a physical data room, with the added benefits of online accessibility to documents and flexible hours. Convenience, control, scalability, reduced time and cost savings are key reasons why virtual data rooms have gained popularity.

Such online document repositories help facilitate the secure exchange of sensitive information between buyers and sellers during a merger or acquisi­tion, as well as the due diligence ex­ercises used with IPO and secondary offerings, bond financings, credit facili­ties and restructurings, all significantly reducing transaction cost and elapsed time.

 

Rapid, Steady Migration from Pa­per to Virtual Data Rooms

For more than 70 years, paper data rooms have been used as the primary venue for posting proprietary business documents and financial data for due diligence review. However, over the past five years virtual data room usage has grown tremendously. Industry ex­perts estimate that the due diligence for 65% of M&A assignments is now be­ing handled virtually. Virtual data rooms offer benefits to both parties. Sellers can set up a virtu­al data room in a fraction of the time it takes to set up a paper data room, providing prospective buyers with relevant information in an organized online environment that is accessible via the Internet. Buyers, working from the comfort of their own offices or any Web-enabled portal, can quickly deter­mine a potential target’s value without having to arrange for travel or dealing with schedule restrictions caused by competing buyers. By leveraging VDR technology, companies can achieve better results providing a selling team and its buy-side counterparts with greater advantages in unique market conditions.

Some providers of today’s VDR tech­nology allow participants to view doc­uments in a common format and en­able broad text searches in romance languages, making it easy to quickly locate and bookmark important infor­mation. Armed with such electronic due diligence tools, buyers can more thoughtfully establish a basis for the price they are willing to pay for an asset under consideration.

Determine Buyers’True Level of In­terest and Intent

For corporate managers selling as­sets, VDR reporting capabilities can be extremely valuable in determining buyers’ levels of interest and intent. Sellers can use reports to identify who is reviewing data, which documents are being reviewed, for how long, and in what order - and ultimately determine how serious a potential buyer is.

Certain reports can also be used to specifically indicate that documents have “in fact” been reviewed, provid­ing proof that disclosure requirements have been met. This type of capability can help minimize legal risks and po­tential holdback claims.

Gain Greater Control and Flexibil­ity over the Data Display

VDR technology also gives compa­nies greater control and flexibility over the way they organize and present in­formation and invite prospective buy­ers to participate in the deal. Sellers can more easily cast a wider net by inviting quali­fied bidders from around the world in an effort to maxi­mize sale price. At the same time, the seller can choose to limit information access to particular viewers, depend­ing upon its relevance. One key to realizing true benefits is the availability of rigorous,yetflexible,security protocols. By enjoying such tools, site administrators are able to exercise highly spe­cific, individualized control over actions such as viewing, printing, cutting and pasting content, and access to origi­nal source files. As company information can sometimes be extremely sensitive, hav­ing such safeguards and controls is critical.

Adding Language Trans­lation to the VDR

As VDRs appealed to com­panies managing cross-border deals by eliminating the challenge of moving in­formation from one country to another, it followed that language translation capabilities could be accretive to the VDR solution. To address this require­ment, vendors such as Merrill DataSite™ have embedded a language translation platform directly into their VDR offer­ing. Through this approach, companies can further accelerate the process of bringing a deal to market.

Technology that Transforms Deal Making

Regardless of the complexity of a given transaction, a smooth due dili­gence process reduces transaction time and is critical to successful deal making. While virtual data rooms have made a profound, positive impact on the due diligence process, the most streamlined transactions are ones that are facilitated by a VDR provider with deep experience in the financial and legal document industry, and a cultur­al, organization-wide discipline for the management and processing of confi-dential content.

For more information please go to: www.merrillcorp.com/datasite

ABOUT THE AUTHOR

Richard Martin is Director of Mar­keting of Merrill DataSite for Merrill Corporation, a leading provider of outsourced solutions for various com­plex business communication and information management needs. He works closely with M&A profession­als to provide virtual data room (VDR) solutions for their transaction and due diligence needs. Prior to joining Merrill, Richard led the hedge fund strategy group at Morgan Stanley Capital International. He received his B.A. from Dartmouth College in 1992 and currently resides in New York City with his wife and child.