Member Article

About Virtual Data Rooms for M&A of Startups

Mergers and Acquisition or M&A transactions taking place these days across the globe are bringing the sellers and buyers throughout the world closer to each other. For this reason the dealmakers of modern times search for an intuitive and sophisticated place where these transactions can be finalized without any security issues. The increasing incidents of global M&A transactions have increased the importance of due security and carefulness. This need of safe and secure environment has evolved the concept of Virtual Data Rooms in which a set of controls and procedures are placed to manage a security system for information.

What is a virtual data room?

An online repository that can be used to store and distribute documents is known as a Virtual Data Room, example firmex.comIt is used to provide the process of due carefulness while dealing with a loan syndication, venture capital transaction, private equity or M&A transactions. Traditionally, this process of due carefulness was used as a physical room where disclosure of documents was completed. These physical rooms have been replaced by Virtual Data Rooms due to their low cost, better security and effectiveness.

Reasons to use a virtual data room during M&A

In order to make the entire process of due diligence in M&A transactions safer, easier and more efficient for everyone Virtual data rooms are used. The seller party is allowed to have full control on when, how and to whom the information is to be revealed through this arrangement. All the communication with the buyer side can also be done by the seller party through these data rooms. They are also allowed to disclose fully audited information all the activities through a single digital record after the deal is completed.

What is mean by due diligence?

In relation to M&A due diligence includes the leak of information by the seller party to the prospective buyers. This process ensures that before making any final deal all the relevant facts should be exposed to all the parties involved in a deal. The term due diligence originated in 1933 in the United States Security Act, where a broker accused to disclose inadequate information was protected, if he could reveal that they had used due diligence while providing information. It was included in the industry standards to avoid the risk. Today companies use it as a norm for the voluntary and legal disclosure of all types of information about the current procedures and future plans to the prospective buyers, to them give a clear picture of the project.

Things to consider while choosing a virtual data room for M&A

Accessibility: You should consider how easy is it to open and view documents. Does it need downloading of software to access data room by you and the prospective buyers? How fast this accessibility can be changed?

Flexibility: You should see whether an extreme security setting can be applied or can be changed to see the documents. Is the flexibility on accessing, watermarking, saving and printing the documents can be accessed by the users? Whether the system can be changed suitably to the size of the deal?

Easy to use: You should see whether it is easy to get and run a data room or not. Can multiple users log on it from different operating system and zones easily? Which intuitive systems you can use to save time while navigating around, uploading or downloading bulk information?

Control: You should also look the extent of control offered by the virtual data room. Can it easily provide you clear overview of all the activities?

Search: You should focus on the sophisticated search facility provided by the data room while searching across the headlines, PDFs and within the MS documents.

Reporting: Reporting tools and format of the data room is also one of the main things to be considered while choosing one.

Security: The security accreditation and other measures owned independently by the provider of data room to keep your data safe from wrong buyers is another thing to be considered by the sellers when finding a data room for a M&A deal.

Support: The data room should provide 24/7 support regardless of the geographical existence of the service provider. You should also inquire about the kind of technical and strategic support and its format provided by the provider of data room.

Thus, today Virtual Data Rooms are very important for the safety of seller’s information during M&A deals.

This was posted in Bdaily's Members' News section by Jhilmil .