Virtual Data Rooms for Mergers and Acquisitions: Why and How to Use an M&A Data Room

M&A deals can be overwhelming for all parties involved. These deals involve many repetitive and tedious tasks like document requests and reviews, which prolongs the process and makes it inefficient. 

However, there is a great solution — the M&A data room. It’s designed with complex transactions in mind, so it allows users to work effectively throughout the whole deal lifecycle.

Acquiring a virtual data room is a highly valuable and beneficial investment because it provides M&A participants with immediate access to the most up-to-date information and ensures effortless and fast data sharing.

What is an M&A data room and what are its benefits? How to organize it for an M&A transaction? And what documents to prepare and include? Find the answers in the guide below.

What are mergers and acquisitions?

Mergers and acquisitions (M&A) is the consolidation of companies or assets through various types of financial transactions. People often use the terms mergers and acquisitions interchangeably. Yet, they have slight differences in meanings.

An acquisition is when one company takes over another, gains control of that company, and establishes itself as the new owner.

A merger is when two companies of approximately the same size join forces and consolidate into one entity. They often come up with a new name.

But from an economic point of view, both mergers and acquisitions typically result in the consolidation of assets and liabilities under one entity. That’s why the difference between the two terms is still not clearly defined and even not that important.

There is not a billion-dollar company that hasn’t participated in at least one M&A transaction. This is because M&As have numerous advantages:

  • Improved economic scale
  • Increased market share
  • Increased financial resources
  • Reduced competition 
  • Reduced risk

Still, there are many challenges companies face during M&A transactions:

  • Data security. As M&A involves storing and sharing many confidential documents, complex financial transactions, and constant communication with multiple parties, security measures are always the top concern.  
  • A large volume of confidential data. Successful M&A is impossible without a considerable due diligence process which requires a big corporate document repository and involves lots of file sharing.
  • Resource consumption. M&As take much time and money, distracting executives from important business tasks and making them concentrate on things like document storage or document management.

To cope with these challenges, virtual data rooms offer specially designed tools and features to ease secure document sharing, speed up a due diligence process, and facilitate decision-making.

Let’s take a closer look at virtual data room providers and see how they can be helpful during M&As.

M&A data room, M&A virtual data room, data rooms for M&A

What is an M&A data room?

A virtual data room is a secure cloud repository used for storing and sharing confidential information between different parties that are involved in complex corporate transactions.

Virtual data room vendors ensure a properly secure environment for M&A transactions that can not be achieved via conventional cloud storage or a physical data room. Moreover, the best data rooms for M&A provide everyone involved in the deal with all the needed functionality to enable smooth collaboration and streamline workflows.

Virtual data rooms for mergers and acquisitions are very useful when examining critical corporate data during M&A transactions. However, it’s worth noting that using a virtual data room for due diligence is only efficient when all the documents have a consistent and clear M&A data room structure.

Which begs the question, “How can you organize important due diligence documents and folders in your M&A data room to make the deal process easier for you and other interested parties?”

Step-by-step preparation of a virtual data room for M&A

Here is a step-by-step guide for better setup and organization of  virtual data rooms for mergers and acquisitions: 

1. Gather and structure documents 

It’s important to identify all the necessary documents and analyze how to organize them by categories and topics and designate restricted folders. It’s worth creating a plan for your virtual data room. Consider the following questions:

  • What documents will be required during the due diligence process?
  • How much capacity will you need to store all of your sensitive documents in the VDR?
  • How many users are expected to work within the data room?

You need to break down the process into smaller, more manageable tasks and create a checklist. It will make uploading files to the data room much easier, and there will be less chance of forgetting something important during folder organization. 

2. Assign administrators 

Here you need to focus on admin responsibilities. It usually includes setting document access, creating and managing folders, inviting users, and maintaining the VDR. There should be a balance when providing access to the virtual data room, as inviting more users leads to more transparency and advanced communication.

It’s recommended to assign at least two administrators to monitor all activity within the M&A data room. It will also help to speed up the preparation process of the M&A data room.

3. Upload all documents 

You need to upload all relevant files which are going to be used during the deal lifecycle. It’s also important to keep all documents updated regularly. Outdated documents are not valuable during the M&A process — some financial documents may be the only exception.

Also, you should regularly check whether documents in the data room are still relevant and useful to avoid wasting storage capacity. Storage space can get expensive, so make sure you use it efficiently.

Don’t forget to remove unnecessary files from your folders, such as thumbnail caches and temporary office files. There are also several common ways to upload documents to the data room, including:

  • Direct uploads. The admins manually upload all files to the data room.
  • Syncing local folders. The user that uploads files can organize the folder structure from a local storage device and then sync the content with the virtual data room.
  • Delegating uploads. All files uploaded to the data room go into a preparation folder where an administrator can review and approve them.

4. Invite other authorized users 

When it comes to inviting other users to your M&A data room, security is the top concern throughout the deal process. Virtual data room vendors provide a wide variety of security features, such as two-step authentication, advanced encryption, digital watermarking, user access permissions, and activity tracking. 

When you invite new users to your virtual data room, consider the following questions:

  • Which documents should I restrict access to?
  • Which users should have the authorization to edit files?
  • Is it possible to track user activity within the virtual data room?
  • Do I need an NDA for new users?

After answering these questions, you can decide what to share with potential buyers and other parties involved. Keep in mind that involving too many people in a deal increases the chances of a data breach. You should only give essential people access to your VDR. Furthermore, administrators should continually track the room’s user activity to help avoid leaks. 

5. Continue maintaining the data room 

Now that you have everything set up, remember to keep up with your data room’s maintenance. Always keep documents up-to-date, manage comments and questions in the Q&A section, and manage user permissions and groups. The admins should also review user activity to better understand which files are the most interesting to potential buyers or investors.

Documents to include in an M&A data room 

The most common documents needed for M&A transactions include: 

  1. Legal documents (company and legal structure, trade register excerpts, overview of IP and trademarks, by-laws)
  2. Intellectual property  (licenses, approvals, permits, and certificates)
  3. Agreements (shareholders’ agreement, list of all lease agreements)
  4. List of current shareholders, officers, and directors
  5. Customers (standard customer contracts, list of the company’s 20 largest customers or channels)
  6. Supplier documents (top three supplier agreements)
  7. HR documents (standard working contracts, CVs of key personnel, employee details, contracts of key employees)
  8. Finances and taxes (tax accounts, financing agreements, audited financial statements)
  9. List of insurance policies
  10. Current management reporting and business plan

How virtual data room services benefit M&As

The best virtual data room software for M&A can bring much value to companies involved in complex transactions. Here are the most important advantages of using an online data room for mergers and acquisitions: 

  • Security. The best virtual data room solutions for M&A deals provide such features for data protection as activity and document tracking, encryption, audit trail, and watermarking. Using these features will minimize the risk of a data breach during complex transactions.
  • Easy collaboration. Virtual data rooms simplify collaboration because they can be accessed from any place at any time, as all files are stored in the cloud. Therefore, users can benefit from integrated communication and collaboration tools. An M&A data room helps to keep everything organized and easily manageable.
  • Time and cost savings. Using online data rooms eliminates the need to travel for document review. Also, there’s no need to rent physical data rooms, as everything is stored in the cloud and can be accessed through an internet connection. 
  • User activity tracking. As a VDR user, you get reporting tools that allow you to see each document’s user activity within the data room. The administrators have full control over all sensitive data.
  • Ease of use. Most virtual data rooms are very user-friendly and have an intuitive interface so that even less tech-savvy users can onboard easily. Among the most helpful features are multilingual access, single sign-on, no-plugins, and mobile apps.
  • Customization. Online data room providers let users customize their virtual space. For example, users can upload their company’s logo and adjust theme colors to promote their brand. They can also customize headers and footers in documents.

Key takeaways

Here are the key points to know about data room providers for M&A transactions:

  • Mergers and acquisitions is the consolidation of two companies into one entity with the purpose to grow and expand.
  • A virtual data room for M&A is a secure cloud repository used for storing and sharing sensitive information.
  • To start using a data room — gather documents, assign administrators, upload the files, and invite other users.
  • Among the documents to include in an M&A data room are intellectual property documents, agreements, a list of current shareholders, officers, and directors, supplier documents, finances and taxes, and a list of insurance policies. 
  • The main benefits of finding a data room provider are security, straightforward collaboration, time and cost savings, user activity tracking, ease of use, and customization.

A virtual data room serves as an advanced solution for effective work that brings a lot of value to the whole M&A process. Visit our main page to compare virtual data rooms and choose the best providers for M&A available on the market.