how to prepare data room for M&A

Preparing a Data Room for M&A

Aug 25, 2021

An M&A virtual data room is a valuable resource for any merger and acquisition as it facilitates the process, leaves no room for error, and protects the privacy of shared information. However, the process comes with its ups and downs regardless of the kind of M&A involved.

Getting the M&A data room to facilitate the process isn’t enough, it has to be organized for the task ahead. You can prepare your data room with the following steps.

1. Draw a blueprint of your ideal data room 

Planning is everything — the same goes for any virtual data room. When you draw out the blueprint of how your ideal M&A data room will look, it will make the entire process faster when the VDR finally arrives. 

With a laid-out map, you know whom to grant access to and the documents that you’ll need. Create a rough draft for yourself — the aim is to outline all of the files that you’ll need and to determine who will have access to them. Having a plan will make the entire process go smoother and quicker.

2. Grant access to relevant people 

Inviting and assigning access to many people comes with a fair share of benefits — and perhaps downsides, as well. First of all, it displays transparency and improves communication. However, on the other hand, it can lead to a typical case of the proverbial “too many cooks spoiling the broth”. When too many people are involved, by the end of the day, some may decide it best to drop out of the deal — but they’ve already been granted access to certain information. So you have to be strategic when assigning access. 

Not all casual buyers should be granted full access to certain sensitive documents since you aren’t sure if they are going to jump in with both feet. If not vital to their part of the process, users should have limited access to financial figures and company names involved — no matter if they’ve signed a non-disclosure agreement (NDA).

3. Create special folders 

To make it easier when assigning access to people, specially-labeled folders should be created. Sensitive and confidential documents should be stored in a separate folder and labeled accordingly. When it’s time to start sharing the documents, proper labeling will reduce the chances of you getting flustered in the heat of the moment and revealing documents to the wrong buyers. This is why it’s best to plan the design and access permissions before starting to use the VDR for an M&A deal.

Common folder and label names include:

  • HR (Payroll, pension files, employee resumes, etc.) 
  • Financial (Bank statements, debt profile, etc.) 
  • Legal (Contracts details, shares certificates, etc.)

Taking all of these steps helps to make you organized beforehand and makes the process even more efficient for everyone when it starts.

Marshal Lewis, a marketing director at DealRoom, lends credence to this fact: “Making a folder structure requires an understanding of the company. It helps to know the business model, industry, and structure of the company to better set the structure in a way that makes sense and is efficient for everyone”.

4. Plan ahead for minor issues 

The M&A virtual data room can shed light on areas you never imagined were faulty, and probably would pass them off as minor issues. So it’s best to anticipate them — once you identify them, you can start fixing them. Oversights such as unsigned documents or incorrect legal documents can create a traffic jam and slow the process. 

Even incorrect dates due to typos can cause glitches in the M&A deal process. Flesh out these minor details in time to avoid snags when things are in full motion. 

5. Consistently engage with a VDR

For most companies using data rooms, erratic usage may cause major bottlenecks. The VDR isn’t a one-off engagement, it requires continuous updating. Dumping data like it’s moribund and revisiting it only when a deal is in the pipeline is a recipe for failure. 

Cleaning and erasing old files, old employee data, and documents that have outlived their relevance  can be a burdensome task if left unattended for too long. Procrastination can  gulp up much of the time you could have used to make the above preparations — by the time you know it, the deal is staring you dead  in the face. Now, you may be going into a deal ill-prepared because you’ve spent your time tidying up a messy data room.

Final thoughts

Most M&A deals with virtual data rooms have experienced avoidable setbacks owed to poor preparation. Potential partners, in hindsight, may not want to conduct another deal with such a company.

Hence, preparation is the best shot at having an effective data room for M&A that guarantees seamless deals from start to finish.