The mergers and acquisitions (M&A) process is difficult and turbulent for any business. However, it can run much more smoothly with the use of a M&A virtual data room. Understanding its definition and advantages may help you through this frenetic time.
WHAT IS A VIRTUAL DATA ROOM?
To understand what a M&A virtual data room is, you must first be aware of what is needed during mergers and acquisitions. It is the selling company’s responsibility to furnish the buyer with all important documents, including intellectual property, contracts, financial statements, employee information and more. All of this should be furnished in a way that is confidential in order to protect customers.
Before the dawn of electronic data, hard copies of all of these documents were stored in a physical room. This led to the potential for security breaches, loss and damage. The virtual data room minimizes most of these risks by enabling the safe storage of all information electronically.
WHAT TO PLACE IN YOUR VIRTUAL DATA ROOM
Your data room should contain general information about your company, not anything protected by attorney-client privilege. It is also advisable to redact confidential customer information. In general, your virtual data room should hold the following:
• Corporate documents such as certificate of incorporation, bylaws, list of subsidiaries, shareholder minutes, business licenses and permits, board minutes, and list of current directors and officers among other things.
• Information about stocks and other securities, including lists of shareholders, option holders, warrant holders, stock purchase agreements, stockholder agreements, etc.
• Financial and tax documents including but not limited to audited and unaudited financial statements, monthly financials, federal, state, foreign and other tax returns, bank account information, promissory notes and loans, inventory and related policies, documentation of property and other assets and cash flow analysis.
• Information about all owned and leased property, including data about personal property.
• Intellectual property such as patents and patent applications, contracts, license agreements, trademarks and service marks, nondisclosure agreements, copyrights and domain names.
• All agreements you have entered into such as leases, partnerships, intellectual property, noncompetition, employee, mortgages, loan or credit, etc.
• Marketing and customer data including customer lists, credit and collection policies, product lists, sales projections and marketing reports.
• Suppliers, including list of suppliers and manufacturers and agreements.
• Permits and licenses.
• Data about any disputes or litigations.
• Copies of all insurance policies.
• All data related to employees and consultants, including lists of names and positions, organization charts, benefits plan, employee handbook, etc. • Public relations documents such as press releases and professional reviews.
ADVANTAGES OF THE VIRTUAL DATA ROOM
Virtual data rooms are placed in an online ecosystem, which creates several upsides. For one thing, you have full control over which documents you choose to share. Furthermore, it is your call as the selling company as to which personnel are given access and to what information.
Since everything takes place online, you or your investment bank also have a great deal of supervisory control. For instance, you can tell exactly who has logged into the data room, when the entries occurred and how often parties have visited.
WAYS TO PREPARE YOUR VIRTUAL DATA ROOM
Since virtual data rooms are secure, searchable, cost-effective and easy to update, it makes sense to make one of these a part of your M&A process. If you do, keep the following tips in mind:
• Be sure to involve key staff members in ensuring that the virtual room contains all necessary documents.
• Make setting up your virtual data room a priority. If vital data is missing or slow to be obtained, you might lose the whole deal.
• At the same time you set up your data room, also prepare all disclosure schedules that will be attached to the acquisition agreement.
Selling your company or merging it with another is an extremely complex undertaking. Using a virtual data room during M&A might just save your sanity and make the procedure run more smoothly and securely.