With the increasing use of virtual data rooms in mergers and acquisitions (M&A), there is a growing need to understand their roles and functions, particularly what they do for the overall M&A deal closing.
Virtual data room – a new approach to M&A deals
Technological progress, globalization, but sometimes just managerial fantasies lead to phases in the world economy in which a particularly large number of companies change their owners. A company merger is a process in which the assets of two or more companies are combined in some way. The success of an M&A process largely depends on strict project management. Even if each transaction is different, the individual work steps are repeated. All necessary activities must be tackled on time to quickly lead the parties to a decision.
The next step is due diligence, which is the buyer’s comprehensive examination of the company. The strengths and weaknesses, as well as opportunities and risks of the company, are analyzed to minimize the acquisition risks verify the purchase price, and identify the first measures for the time after a sale. Then, the financial situation, based on annual financial statements, earnings analyzes or the credit situation, the legal situation (articles of association, capital measures, etc.), and tax issues (tax returns and assessments, appropriateness of directors’ remuneration, etc.) are checked. Finally, the disclosure of sensitive data such as annual financial statements, articles of association, and customer lists takes place in an appropriately prepared virtual data room.
Even if the M&A process must be carefully prepared and executed, too slow a pace can jeopardize the entire transaction. Here, the M&A consultants, in particular, must regularly provide the parties involved with information, address open questions, compile documents, organize meetings between the contracting parties, and set appointments. It is also important to record the process steps that have been achieved. Protocols and, ideally, an LOI (Letter of Intent) fix the negotiation results achieved. In this case, data room software also plays a vital role, ensuring fast file-sharing and data storage functions.
The functionality of the M&A data room
Using the digital data space in M&A transactions is not an additional option; it is a necessity. When all M&A documents were stored in paper form is long gone. Nowadays, cloud computing offers an excellent alternative where all the documents for the deal are securely organized in a single collaborative workspace.
Following australian-dataroom.net, the digital data room is a virtual room used as a cloud for storing and processing M&A documentation. In the conditions of digitization, electronic data is of great importance for every company. In contrast to physical rooms, which provide all documentation important for companies in a neutral place, virtual software solutions move collaboration into an online format to make it more efficient and automated.
The Digital data room provides many benefits for organizing efficient M&A deals:
- maintaining information about the company’s contracts in a single repository of documents;
- possibility of serial and parallel matching;
- search for documents, including the search for any word, found in the text of the document;
- visualization of all actions at all stages of contract approval;
- keeping a history of all work processes, completed or not, within the entire system;
- continuous monitoring of the state of the process (current stage of approval; the person considering the application at this stage; the final status of the application);
- convenient, secure, and fast access to data from mobile devices.