A data room is a physical or virtual space where one party can disclose confidential information in a controlled manner to a number of other interested parties. Data rooms are used frequently during mergers and acquisitions (M&A) where a seller and their advisors need to facilitate due diligence and reveal information about their company or asset to several interested buyers at the same time.

Learn more – What is a Data Room?

A virtual data room (VDR) is a virtual space that acts much like a physical data room except that all data is hosted securely online with security controls over information and reporting on usage. In the days before virtual data rooms, M&A potential buyers would need to visit an actual room in person to review stacks of critical documents and paperwork. Today, multiple potential buyers can access confidential information simultaneously online.

Learn more – What is a Virtual Data Room?

Data rooms make the entire M&A due diligence process easier, more efficient and safer for everyone involved. They allow the sell-side party to keep full control over how and when information is revealed and to whom. The sell-side can also manage all communication with their bidders through the virtual data room. When the deal is done, they offer a full audit trail of disclosure through a single digital archive of all activity.

Due diligence, as it relates to M&A, involves the disclosure of information by the sell-side to prospective parties. It is the process to ensure each party involved is exposed to all relevant facts before making any final decisions on the deal.

The term originated in the United States Security Act 1933, where any broker accused of inadequate disclosure was protected from liability if they could demonstrate that they had performed due diligence. Naturally, to avoid risk this practice soon became the industry standard.

It is now the norm for companies to make a legal and voluntary disclosure of all sorts of information to help potential buyers form a clear picture of their current operations and future prospects. Interested parties are then able to make informed and intelligent business decisions.

Learn more – What is Due Diligence?

Documents concerning the past, present, and future prospects of the business are made available to each bidder during due diligence. The aim is to be as open and transparent as possible, while still protecting the interests of the business.

Care needs to be taken, as interested parties could include the seller’s direct competitor or perhaps a new company entering the industry. Equally, the deal may at any time fall through or be called off. In the case where the deal does successfully go through, there is a duty of care to ensure that unsuccessful bidders aren’t left with information that could be used against the new owner.

For this reason, extremely sensitive information may be held back until the final stages of negotiation when it is clear which bidders are serious about making a deal.

Learn more – What is Due Diligence in Business?

Yes! There are many products on the market that often get labelled as ‘data rooms’ but are in fact more like simple file sharing. When it comes to M&A, they are ill-equipped to offer the level of security, collaboration tools, reporting and flexibility needed in the typical high risk low trust environment of M&A due diligence with bidders who can be the selling companies direct competitors. 

Products can vary from the very basic, with minimum security and rudimentary filing structure and navigation, to more sophisticated, highly secure and at times, very complex setups. Going with generic file sharing and storage tools is a false economy as the lack of features creates inefficiencies that result in higher transaction costs and waste time of busy management teams who should be maximizing focus on running the business while a transaction is occurring.

Learn more – Virtual Data Room Providers.

Basic data rooms are great for sharing files between offices and disclosure.

However, during M&A when a seller wants greater control over who sees what and when, with greater visibility over potential buyer behaviour in the data room it pays to invest in a data room built with the specific M&A workflow and process in mind.

At first glance, it might seem that a simple secure environment is all that is needed to share documents during your deal. However, beyond document storage you need to consider how easy it is to upload and download documents, to integrate with Excel and email, to set security for different users, to change access quickly if the mood changes during negotiations, to shut down access in an instant if the deal is called off, to analyze reports to focus on risks, and to restrict access to some parties and not all - for instance, if a close competitor is in your data room. Even seemingly simple things like how documents are indexed and numbered can cost hours and thousands of dollars, whereas a data room can do this automatically to best practice standards that advisors and investors require. 

In short, the impact on every users experience for both buy side and sell side teams translates into greater efficiency, confidence and outcomes or significant frustrations, stress, risk and inefficiency. The right tool for the job at hand is a critical decision.

Simple systems are intended for simple usage. They can fast become a headache when used for anything more. Limited functionality can cause a huge waste of time and potential security issues for all involved.

Learn more – How Secure is a Virtual Data Room?

By using a specialist data room, you will find features built specifically to make the M&A due diligence process easier and more secure. What you won’t find is a bunch of stuff you will never use cluttering up the page and slowing down the system.

That means potential buyers accessing your data room will see a professional looking system where they can find the information they need to make their decision fast.

Great news if you are the one selling!

During M&A, once your data room is up and running, your ability to keep the deal running smoothly will largely revolve around due diligence Q&A. Q&A (questions & answers) is where interested buying parties ask the seller and their advisors a number of questions to decide on the value and attractiveness of the company to be sold. Questions typically relate to documents that have been made available for review through the data room. Answers are often drafted by advisors or subject matter experts in the business and then sent to senior managers for approval. Given the sensitive nature of questions subjects, like HR employment agreements, it is essential that access to subjects can be restricted to both buy and sell side users. Allowing bidders to upload questions in bulk from excel templates and export too is another essential feature in modern Q&A workflow for deals.

Some people choose to run Q&A outside the data room using complex Excel spreadsheets passed back and forth over email. On each buy-side team, long lists of questions are compiled and sent to someone on the sell-side. That person then has to review the list and send out clusters of questions to different people in their team to review and respond to. When they receive answers bit by bit from different people they have to continually update their spreadsheet and forward the relevant answers to the relevant buyers. If this sounds like a chore, then you would be right! It’s the single, most time-consuming part of the M&A process. This is where ‘M&A’ can equal ‘Misery & Angst’!

This method is complex, laborious and risky, with question and answers often getting duplicated. There’s the continual risk of sending the wrong information to the wrong person, potentially outdated spreadsheets being in circulation and the creation of an understandably complicated audit trail across numerous email accounts. It can be overwhelming.

Thankfully there is a better way. With all Q&A-related documents being held within the data room, it makes sense to run Q&A here as well. Ansarada offer a Q&A process designed exclusively for M&A to help centralise Q&A workflow and make life easier and safer on both sides of the deal.

Access

• Can you easily connect your data room to drag & drop or automatically import documents from other systems and Cloud storage solutions?
• Will documents imported from Cloud storage solutions automatically sync for constant updating?
• How easy is it to open and view documents?
• Do you need to download any sort of viewing software?
• Can you and your potential bidders access the data room from all operating systems and devices with the same ease or are there any restrictions/caveats?
• How fast and easy it is to change access by user or user group if needed?

Flexibility

• Can you change who sees what, or do blanket security settings apply?
• Do you have flexibility on watermarking, document access, printing, saving, revoking access by user?
• Is the system easily scalable to suit any size deal?

Ease of use

• How fast and easy is it to get the data room up and running?
• How easy will it really be for multiple users to log in from different time zones and operating systems?
• How intuitive is the system to navigate around?
• What systems are in place to help save time, such as bulk upload and download?
• Does the Room come pre-provisioned with workflows and processes?

Control

• How much control can the data room offer over workflow?
• How easy is it to get a clear overview of all activity within the data room?

Search

• How sophisticated is the search facility?
• Can you search within documents as well as across headlines?
• Can you search for terms within PDFs as well as Microsoft Office documents?

Reporting

• What reporting tools are available?
• What format will reports come in?
• Does the Room use AI to automatically predict outcomes and score activity?
• Are easy-to-view and use dashboards included?
• Does the Data Room feature scorecards that automatically show you how your transaction is progressing and the status of documents?

Q&A for M&A

• How easy would it be to run Q&A through the data room?
• Can you easily create scorecards and templates for the transaction?
• Will you still need to use email and spreadsheets for tracking and Q&A?
• Can you easily assign people to review documents, Q&A and information?
• Does the Data Room offer threaded commenting?

Support

• Does the data room offer 24/7/365 support if needed?
• Where is the support based geographically?
• What kind of support is available – just technical, or is more strategic expert support available?
• How fast will they respond to your enquiries? In what format?

Pricing

• How is the cost of your data room calculated?
• Are there any additional fees that could potentially be added as the project moves forward?
• What happens if your deal gets delayed or even cancelled?
• What happens if you exceed information limits?
• What happens if you need to scale-up or scale-down users?
• Can you get access to monthly pricing?

Security

• What independent security accreditation does the provider have?
• What other security measures are in place to keep data from falling into the wrong hands?
• How foolproof is the audit trail?

Experience

• What experience does your provider have in the M&A space?
• Have they ever worked on a deal like yours before?

For a comprehensive checklist, chat to an Ansarada advisor. Here is a sample of the most basic checklist you should address when selecting a data room:

1. Does the vendor offer 24x7x365 support and has a dedicated customer support person available for training and guidance? Ansarada enables you to select the support offering best suited to your needs and stage. Our team has supported thousands of people, from those who are first timers through to the world’s most sophisticated dealmakers. 

2. Will you be charged for the data you load? Most rooms exceed the data limits and prices quoted resulting in pricing surprises. Don’t pay for data - it is critical to securing an optimal outcome and you shouldn’t be worrying about it. 

3. Are pricing and feature packages scalable and flexible? Most events run longer than nine months and the number of guests will change during this timeframe. Most events also require security and reporting that generic file sharing and storage tools can’t deliver. Ansarada enables you to pay for as little as one month, or buy an annual plan with significant discounts. Extra features and users can be added as needed, and the number of guest users is unlimited too. 

4. What security standards and features does the room satisfy? Most legacy room vendors quote a range of security features that are standard. When looking for ISO 27001 compliance, don’t be faked out. Ask for the vendor's ‘Statement of Applicability’ for their ISO 27001 certification as an indication of total security. Ansarada complies with 113 controls under this standard and has passed external audits against them for 9 years straight.

5. Also, look for features that ensure critical security functionality is available - such as the ability to control document access, printing and saving in their native format. The ability to track, report on usage and destroy downloaded documents you may let people temporarily save remotely is also essential. Doing all this in native formats like Microsoft Excel is essential too, otherwise conversion to an online viewer can make it unusable. Check how easy the security controls are to understand and use too. Nothing frustrates people more than overly complex controls. 

6. Are core functions like Q&A automated & modernized? Most legacy rooms offer basic Q&A with limited workflow flexibility, role allocation, commenting, collaboration, reporting and security controls on their Q&A facilities. All this restricts their usage and introduces risks and inefficiency.  With more than 70% of deal-time spent on Q&A, look for a data room that nails this. Advanced data rooms integrate with Excel, allowing importing of pre-written questions a breeze, and exporting out for reporting, proof of disclosure and compliance easy too. 38% of all actions in the Q&A process involve getting answers reviewed and approved before disclosure, and 90% of all questions take up to six interactions to answer. Q&A that allows an answering and approving of answers via email simplifies and accelerates this critical process, especially for senior executives. Ansarada’s advanced Q&A puts you in total control and reduces the workload to a fraction of the time. 

7. Ensure compliant procurement policies and recommendations. Vendor incentives thrown at advisors by legacy data room providers do not meet many current procurement and compliance policies. If you're an advisor, ensure you are making a fair and independent recommendation to your client. If you’re a company, make sure you are getting recommended to go with the solution that will serve you best based on service, price, features, security and ease of use - not on entertainment and incentives given to advisors that you end up paying for.

Companies often receive multiple-bid quotes from advisors on rooms. Here are a few of the questions to ask:

1. Will there be any pricing surprises and cost overruns? Predictable pricing based on a monthly or annual subscription will reduce the risks and enable you to grow the room as your need and opportunity grows.

2. Are there purpose-built tools for you and advisors to make preparation for deals and projects easier? Look to start work in a data room platform as quickly as possible. This will expose sources of value and gaps faster. You can track towards outcomes and collaborate with advisors efficiently. Flexible pricing and Cloud connections to major services such as Google and Dropbox makes it easy to get going. 

3. Can AI, advanced Q&A, and Pathways make the process more cost efficient? Eliminate risks? Help make smart decisions? How will your virtual data room boost your team’s productivity by enabling processes to be standardized and scaled? What risks and extra costs will you incur without these?  

4. How can you be assured of compliance and probity - even on documents downloaded from the room? Most virtual data rooms offer a degree of security. Ask for ISO27001 compliance and a statement of applicability against it to quickly assess the comprehensiveness of the vendors security controls. 

5. Is reporting based on subjective data, rather than AI driven insights? Does the data room offer AI-powered scoring of bidders engagement levels? Advances in AI enable you to predict the outcome of a material event with 97% probability by day seven. This same capability enables you and advisors to focus on the right people and eliminate people not engaged fully in your transaction. 

6. How has the recommender benefited from the room vendor? Data room vendors offer advisors a range of incentives to recommend rooms. These range from tickets to sports games to other benefits. Ansarada operates to strict procurement and professional standards to ensure integrity. Ensure your recommendation of a room is not being made unethically and outside your procurement policies.