October 02, 2020

DealTech: VDR Fight for Due Diligence Dominance Spreads Out Over Deal Cycle - Analysis

A fierce battle between virtual data room (VDR) providers to dominate due diligence - the mid-point of the M&A cycle - is spreading out across other points of the process of buying and selling companies, according to a series of interviews published by DealTech.

Datasite (formerly Merrill Corp) is innovating to address pain points across the entire lifecycle of a deal, Thomas Fredell, the Minnesota-based company’s chief product officer, said. As well as its due diligence tools, the company has also moved into adjacent areas, like deal execution, generating interest at the start of a process and helping buyers assess targets, he said.

The VDR provider has seen growth in new projects as its users adapt to the coronavirus crisis, CEO Rusty Wiley said in March. Its clients have discovered new use cases, such as restructuring, bankruptcy proceedings and remote communications, he said.

Since then, company has also launched a new categorization tool, which will open a new chapter in artificial intelligence (AI) applied to deal-making, Fredell said in June. The tool helps M&A professionals prepare for deals by automatically categorizing documents, he said.

Meanwhile, NetRoadshow, an Atlanta, Georgia-based developer of compliant software solutions for the investment banking community, is thinking hard about the opening point of the M&A deal cycle, Marc Smeed, executive vice president of international, said.

The company bought DealSite – a desktop/mobile digital app which allows users to create and manage working group lists - in the first quarter of this year. The creation of a working group list is one of the first steps in the whole M&A cycle, Smeed said.

Two large US investment banks are already on board to test DealSite’s collaborative tool across M&A, ECM and DCM, Smeed said in September. The product is also available on general release, he said. NetRoadshow also offers products to remove multiple back-to-back calls and handle videoconferencing with confidential materials, he said.

“As soon as a corporate or financial sponsor decides to proceed with an ECM, DCM or M&A transaction, a professional at the investment bank leading the deal will assemble and distribute a working group list,” Smeed said in a follow-up interview. “This is a universal and important process, but in the absence of DealSite, is also tedious and error-prone.”

Many processes and workstreams sit downstream of the creation of a working group list, Smeed said. NetRoadshow’s aim is to offer a unified set of live communication and content-sharing tools, he said.

Away from the mid-point of the cycle, SS&C IntraLinks of New York is launching new tools that will facilitate co-investment opportunities, co-head Ken Bisconti said in April.

The move is a response to a trend for limited partners (LPs) to co-invest alongside general partners (GPs), Bisconti said. Improving communication will help, he said, adding that LPs will be able to see fund reporting next to their VDRs.

In a similar vein, Titanbay, a UK-based platform that connects small and medium-sized institutional and professional private investors to private equity (PE) funds, has opened itself up to external investors, CEO Thomas Eskebaek said in July.

Access challenges reduce the amount of capital deployed to PE among investors with less than EUR 1bn under management, Eskebaek said. The pool of capital that is underserved by PE dwarves the capital deployed, he added.

Meanwhile, The Deal Team, a London-based transaction execution company, is exploring innovation in the gaps left by VDRs and advisors. The company, which was founded in 2016, aims to use project management techniques to support management teams while they are engaged in M&A or issuing debt or equity, founder and CEO Julian Macedo said in September.

The Deal Team aims to work alongside conventional advisors for a fixed fee, Macedo said. “We aren’t trying to replace anyone,” he said, adding that it can help executives manage a VDR. So far, the company has worked on a high-yield bond and an M&A transaction, he said, adding that it is exploring a restructuring use case.

Datasite’s strategy of expanding out from the mid-point of the cycle is also popular with other VDR providers. One of the new use cases for VDRs focusses on post-deal integration.

Donnelley Financial Solutions (DFIN) [NYSE:DFIN], a Chicago-based financial compliance company, has seen strong uptick on its clients using its VDR for integration projects, Craig Clay, president of global capital markets, said in July.

Much of the documentation that vendors have to upload into VDRs for due diligence is the same needed to integrate two companies after a deal, Clay said. The shift to remote working has marked a turning point, he said. DFIN has also developed a use case for clinical trial data for pharma companies, he added.

The COVID-19 pandemic means that VDR providers are thinking about restructuring use cases. EthosData of London established proof of concept for this use case in India and wants to roll out this model in other markets, CEO Francisco Lorca said in June.

The use case was developed in the wake of India’s Insolvency and Bankruptcy Code of 2016, which simplifies insolvency and bankruptcy processes and incentivized VDRs, Lorca said. The company typically handles 50 to 60 Indian deals at a time, with around 20% involving restructuring, he added.

Finally, other VDR providers are looking at also developing tools to improve document sorting as part of the fight to dominate the mid-point of the cycle. Admincontrol, a Norwegian tech company that facilitates decision-making, will launch a new tool to allow clients to customize their use of folders in VDRs, Managing Director Moyfrid Oygard said in September.

Meanwhile, Drooms, a Swiss-German provider of VDRs, is beta-testing an auto-allocation tool, Alexandre Grellier, CEO and co-founder, said in July. The new tool will allocate scanned documents to the correct part of the index based on its content, he said.

DealTech (formerly known as M&ATech) covers technology trends aimed at M&A professionals. If you would like to give us any feedback, please contact [email protected]


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