We have a Deal: Interview

Paul Hartzell

These timeless maxims are never truer than in the minefield that is the mergers and acquisitions sector of big business. Completing a successful M&A transaction is a complex process, full of potential pitfalls.

Controlled business data and information access is critical and needs to take full account of the needs and concerns of both buyer and seller. Traditionally, this was a time-consuming paper trail process, with viewing of documents taking place in a neutral, carefully controlled and secure location. With the dawn of the new high-tech electronic age, it became obvious that networked secure internet access could vastly speed-up and improve the process. Initially, pioneers of the concept found themselves trying to sell the idea to people who were not even aware they had a problem – but the markets quickly caught up and the VDR, or ‘Virtual Deal Room’ was born. That happened in 2003 and now the exception has become the norm, with more than 65 percent of M&A.assignments now being handled through a VDR.

Now deals can be processed and executed much faster and more accurately and more of them can be handled at any one time. That benefits both sides in any negotiation. The buyer can make sounder decisions while the seller can have much quicker access to the proceeds from a disposal. What’s more, both sides can avoid the dreaded ‘deal fatigue’ that each year unwinds so many potential deals. Massive growth St Paul, Minnesota-based Merrill Corporation, is market leader in the VDR field, citing paper as still its biggest rival while predicting continued massive growth. The company was founded by Kenneth F Merrill in 1968 and became Merrill Corporation six years later. Today it operates in 70 domestic and 15 international locations and has close on 6,000 employees.

Financial Technology:

Paul F Hartzell is the corporation’s Senior Vice President of DataSite Services: “Our DataSite VDR business has been growing at more than 100 percent per year and will host an anticipated 5,000 on-line due diligence projects this year, with revenues in excess of €60m,” he says.“A Merrill DataSite VDR facilitates M&A transactions by allowing multiple bidding parties and sellers to concurrently participate in the due diligence process within a controlled information environment, dramatically reducing the time and cost involved. “Whatever their role, be it as a CFO, in accounting, human resources, marketing, IT or whatever, all corporate executives are subject to deal fatigue when things get bogged down as they are not just concerned with the M&A activity but have their usual tasks in running the company to worry about. “Most experts now agree that if a deal cannot be brought to a conclusion within 100 days then it is not worth doing as it diverts too many human and financial resources and with every passing day becomes less likely to happen.

Staff on both sides are likely to change during a protracted process, so are trading conditions and the nature of the asset being bought. “Like an old piece of fish, if a deal hangs around too long then inevitably it starts to stink! “I suppose the process is like the build-up to a marriage. You get engaged to someone you fancy. Then start planning the wedding. If that process takes too long it becomes messy and then it becomes less and less likely to work satisfactorily. Of course, you don’t want to rush into things but it is good to get all the information you need as quickly as possible so you can make sound decisions without undue delay.

Valuable tools:

“A VDR provides two very valuable tools in facilitating this. Since the relevant data is 100 percent searchable from any web browser, it enables everyone involved in the process to have instant access to up to the second information. “Secondly, The process of creating this searchable content allows us to trace then review all the relevant documentation and to pull real-time reports. “Additionally, it creates a complete record of the due diligence efforts, providing legally defensible proof of every stage of the negotiations.

“Business negotiators are becoming increasingly aware of the need to more fully rationalise their M&A activities. Will the acquisition involved actually bring added value to the business? Are there real synergy savings to be made by integrating the two businesses? Will acquired execs and other staff be happy singing from the same hymn sheet as their new colleagues? Can the purchasing company justify diverting funds, time and effort from its primary need to run its existing business deficiently? Do the cultures of the two entities have a ready synergy or will the PMI (Post Merger Integration) process be a painful one? Can you afford to not only have to worry about the stuff you make or the services you provide but about those produced by another organisation? All this needs to be figured out.

“You can learn lessons from the experience of others. General Electric is probably the best deal-making corporation in the world and would make a fine case study for anybody anxious to learn how an M&A deal should be done. Their strict due diligence process weeds out potential mistakes before they ever complete a deal and then they place massive emphasis on the crucial and ongoing PMI process. They buy up to three major companies every two to three years and they have a well structured M&A process that they always closely follow so that the whole enterprise proceeds as seamlessly as possible. “The M&A market is changing dramatically. It used to be all about billion dollar deals but, given the current banking climate, it has become well nigh impossible to finance such mega-deals. And the emphasis has switched to transactions in the €50-200m bracket, which don’t need syndicated funding.”

The dealmakers:

"The big deal participants today are the larger corporates and their financial advisors, who are engaging in strategic buying where 18 months ago they lost almost every deal to the private equity phenomenon.” Additionally, many corporations are now using their stock as a way of raising funding, through rights issues, rather than going to the markets for money.

“Where we used to see key players making lots of M&A deals, today we have increasing numbers of people in the market doing smaller sized deals, so DataSite has become more of an educational resource, helping these companies learn the ins and outs of M&A and giving them lots of added value.” Cutting-edge technology, a multi-lingual service and constant development upgrades have given Merrill DataSite an enviable reputation and a clear market lead. All documents are viewable in a common format and are 100 percent text searchable. Buyers can easily identify documents of importance and bookmark them, using the electronic equivalent of a Post It note. Research teams gain valuable peace of mind knowing they are equipped with a tool that allows them to uncover answers to pertinent business questions. Given this search functionality, buyers can more thoughtfully establish a price they are willing to pay.

Ascertaining intent:

For corporate managers selling assets, the VDR’s reporting tools represent great value in helping to determine a buyer’s level of serious interest and intent. Sellers can identify who is reviewing data, which documents they are looking at and how long they are spending doing this. If the report system reveals that C-level and not just junior level managers are reviewing the documents then this is an indication of seriousness.

Reports of documents having been read can act as proof that disclosure requirements have been met and can thus minimise legal risks and possible information holdback claims. What’s more, by using a VDR, sellers can cast a wider net in order to engage potential bidders around the world in an effort to maximise the sale price.  The system is also flexible so as to allow administrators to choose to withhold information that is not relevant to particular viewers or to completely limit their access to certain documents. With a multi-lingual staff available 24-hours a day in its US, London, Frankfurt and Paris offices, the Merrill DataSite team can scan, upload and organise up to 50,000 pages of content from any source in 72 hours or less, or clients can opt to upload their own content. Says Mr Hartzell: “Whether we are talking an M&A deal, an IPO or secondary offering, RETT, a loan or financing facility, bankruptcy or any other transaction that requires a due diligence effort, the Merrill DataSite system enable faster, smarter, more cost-effective and better deal-making.”

For further information tel: +1 212 229 6605; email: paul.hartzell@merrillcorp.com; www.merrillcorp.com