Most M&A Advisors can attest to the logistical nightmare that can arise in scheduling the required (and finite) resources amongst multiple buyers during due diligence. Imagine 15 potential buyers descending upon your company at one time, all seeking to rifle through papers and boxes of documents in order to complete their due diligence. And the alternative? Scheduling each independently, thus spreading them out over the course of several months and losing momentum in your deal. This is clearly a nightmare scenario – yet it is the most likely scenario if you plan on completing due diligence on-site without a virtual deal room.

The Virtual Deal Room Explained

A virtual deal room (“VDR”) is the electronic equivalent of the “war room” or “deal room” that is often set up – typically at a company location – to present all the due diligence data required by an investor. The virtual deal room allows us to move 90% of due diligence off-site. Documents are scanned, organized on a secure server, and then made available for review remotely by authorized individuals, simply using their internet browser. The virtual deal room has thus revolutionized due diligence by streamlining the communication process between buyers and sellers.

Key Advantages for the Seller

The Seller clearly has the most definable and tangible benefits in the use of the VDR.

• Time Kills Deals. This may be an old saw, but it couldn’t ring more true. Simply put, the more time that passes during a deal, the less likely it is to close. The VDR cuts down on potentially months of due diligence scheduling; advances all parties along at the same time; and thus, increases your chances for a closing.
• Maintain Confidentiality. During due diligence, there are two primary concerns regarding confidentiality: the inappropriate use of your data, and the possibility of a disclosure to employees, vendors, etc. regarding the sale. Using a VDR helps to mitigate both. Documents can be set to “read only”, thus preventing anyone from printing or saving the files. Further, by moving due diligence off-site, you greatly lower the likelihood of an inadvertent disclosure to an employee or vendor.
• Mitigate Uncertainties. In every deal, the buyer has a natural sense of uncertainty driven by the fear of what they may not know about your company; they need to overcome that uncertainty in order to close. A robust presentation of data is one of the most clear-cut ways to overcoming that uncertainty.
• Gauging the legitimacy of buyers. We have the ability to drill down on what documents are accessed by buyers and when. This helps us- and you- to get an understanding of what buyers are spending time on; what is of interest to them; and, how diligently they are pursuing the process. After all, why spend time courting a buyer if their interest is only passing?

Key Advantages for Buyers

• Searchable and Indexed Data. All data in the VDR is searchable. Thus a user looking for “org chart” can simply type that in, rather than digging through piles of boxes to find it.
• Accelerate updating of data. Invariably, the initial conduct of due diligence begs more questions and requests for fresh data. The ability to push this data out to multiple parties simultaneously is a clear advantage – no travel time required to visit the physical deal room, and no waiting for overnight parcels.
• Minimize Costs. The costs involved in evaluating a company – travel costs, time spent traveling, etc – can quickly mount. By enabling the buyer to conduct extensive due diligence off-site, we continue to lower the bar for them to proceed forward.

Conclusion

At the end of the day, due diligence should be viewed as a pre-emptive effort. By actively seeking to organize and present data to a buyer in the most useful manner possible, and doing to in the most timely manner possible, we increase the likelihood of closing. Further, by being able to conduct the process in parallel with multiple buyers, we continue to increase the likelihood of a successful closing. To that end Clear Rock uses the VDR as a key tool in the M&A process.