The World of M&A and Data Rooms

June 11, 2021

Mergers and acquisitions, or M&As, are frequent events in the world of business and need to be handled very carefully. In the past 35 years, there have been over 1 million M&As, including some involving some very large companies indeed.

To make a merger or acquisition run smoothly, certain procedures need to take place, and they need to be done securely and privately. Data rooms are purposely designed for handling sensitive information and records involved in financial transactions, including IPOs and mergers.

Without data rooms, the information that is needed by legal teams and their clients would not be able to be viewed securely. Processes such as due diligence would be difficult to complete and there could be data breaches.Security methods are vital to avoid data breaches which could ruin a merger or acquisition as Yahoo found during their takeover by Verizon.

How does a data room work?

Firstly, it is important to understand that a data room isn’t always an actual room. There are two types of data room, a traditional, physical one, and a virtual type.

They both work in a similar way as they are there to hold certain documents pertaining to deals and transactions. Access is restricted to approved parties, and documents can be viewed and if authorized, copied. However, the two types of data rooms are a mile apart when it comes to features.

Physical data rooms

This is exactly how it sounds, a real room that holds information and records. A physical data room would be set up in the event of a merger and acquisition deal taking place so that all interested parties could access relevant documents.

The problem with physical data rooms is that they are in one location, they need securing, and they are costly. Today, many financial transactions are taking place on the internet because the financial marketplace is truly global. A merger between two companies might involve one business in America and one in Thailand so having a physical data room can be a hindrance rather than a help.

For this reason, most companies now use virtual versions of these rooms.

Virtual data rooms

A modern online data room is one of the best merger and acquisition tools available. They can let relevant and authorized persons access records just like they could in a traditional data room, but they do it in a far more convenient and sophisticated way.

Virtual data rooms have a host of features that can make M&A transactions run easier and without any concerns about geography. A virtual data room lets people access records from anywhere in the world at any time they should wish. However, it also lets the room owner have a very specific set of controls over the records held in the room

The owner can set levels of security and access for different individuals. This means that while some people can download and print records, others will only be able to view them on-screen.

What are the features of a virtual data room?

Virtual data rooms make mergers and acquisitions much easier and due diligence tasks simpler. VDRs are also one of the must haves for project management and can be used for many other financial tasks such as raising capital. This is because they have a host of features.

They use international standards for their security but they also feature many other ways to keep documents out of the wrong hands. Records can be redacted, and they can also be limited to viewing by certain people. Different users can have different levels of clearance, and if access is revoked, previously downloaded documents can be pulled back.

Multiple languages are often installed on these systems to take into consideration the worldwide audience they may have. They also have a very useful feature when it comes to mergers and acquisitions.

If you use a virtual data room from Firmex for instance, you will have granular level control and not only does this let you decide who can access what folder or even document, you can also see how long they have been viewing a particular record.

This is very useful when someone wants to know what the other party is concerned about or what they see as important in your files.

Summary

When it comes to mergers and acquisitions, it is crucial to perform due diligence. This needs to be done to show that the transaction is GDPR compliant and to avoid making bad business deals.

Marriott Hotels failed to carry out due diligence when acquiring Starwood hotels and this resulted in a hefty fine for not noticing there had been a data breach.

Virtual data rooms allow processes such as due diligence to be carried out easily and thoroughly. It is difficult to imagine an international M&A transaction taking place without the use of a virtual data room today without problems occurring such as Marriott had.