Data Rooms Controlled by the Buyer

The New Paradigm
Due Diligence, Virtual Data Rooms for Acquisitions, Virtual Data Rooms

When you hear virtual or online data room, you immediately think of a seller or investment banker using a site to facilitate the selling of a company or asset.

This is clearly where most data rooms are used in the Mergers & Acquisitions and Divestiture arenas. However, there is substantially growing use of virtual data rooms that are built by acquirers or buyers that are vetting prospective acquisitions.

Advantages to Buyers of Controlling the Virtual Data Room

There are numerous advantages to a buyer that sets up and manages an online data room for prospective sellers to populate with data. Some of the key advantages include the following:

  1. Project Management Control and Communication
  2. Confidentiality with Buyer
  3. Buyer Efficiency
  4. Seller Efficiency
Project Management Control

With a data room built by the buyer and uploaded by the seller, the data collection and due diligence process is more tightly controlled by the buyer. The buyer can create empty named folders in a tree hierarchy, and then ask the prospective seller to upload relevant documents into the appropriate folder. The buyer also controls which users within the seller are given upload privileges. The documents now reside in one 24/7 accessible secure location that can be seen by simply logging onto the Internet site with login credentials.

Email Alerts to Inform the Buyer that Seller Documents have Been Added to the Site

By maintaining and managing a common collection site, the buyer can also use email alerts as a method to inform the buyer that seller documents have been added to the site. These alerts can be immediate or daily summaries sent at a pre-defined hour each day. This facilitates communication between the parties and obviates the need for time consuming phone messages and mailings. Third party law firms and consultants may also be granted access to specific documents within the data room.

A big problem today for many large corporations is the inability to receive or send emails with large attachments. A buy-side VDR is a simple robust solution to this issue and allows document sharing when documents are large and voluminous.

Confidentiality within Buyer

If the buyer wants to help keep the seller’s data within his own organization confidential and secure , then with permission access controlled by the buyer, only those parties within the acquiring organization that need to see the data are given access. Permissions can also be set so that certain users only see certain folders Microsoft SharePoint platform, have the added advantage of allowing the buyer to save the named folder tree hierarchy as a document library so that on subsequent similar transactions the new data room folder tree directory can be re-created almost immediately just by uploading the saved template. See below.

Online Data Rooms Facilitate Due Diligence for the Buyer

Buyers obtain benefits because the task of organizing and uploading documents into the buyer’s data room is put on the seller. This reduces the numerous steps that are traditionally taken to make the sellers data accessible to the buyer’s due diligence team. Regular mail and email with attachments from the seller in a traditional data exchange are random and may go to many different receiving points within the buyer. Data is lost and may have be resent. It can be misfiled which adds further to the inefficiencies of a non data room transaction.

Traditional data collection process and potential pitfalls shown in the flow chart below:

Virtual Data Room-Due Diligence

Streamlined VDR process flow chart:

Virtual Data Room-Due Diligence, Online Data Rooms

Seller Efficiency – Collecting and Transmitting Data for The Buyer’s Review

While the seller takes on the tasks of uploading the buyer’s data room, the end result is efficiencies for the seller as well. The data collection process is a distraction from the their ongoing operations, so the least amount of time spent on collecting and transmitting data for the buyer’s review, the better for the seller.

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