While the use of data rooms have become a common factor in large deals, many stakeholders still use ordinary solutions for smaller deals in corporate finance. Mostly these solutions are comprised of ‘drives’ and or ‘boxes’, usually provided by huge American corporates who provide data storage via the cloud but do not guarantee secure file sharing. These options are mostly reference tools for individuals wishing to store and share documents of all kinds online. These generalist solutions can appear to small and even mid cap players as an easy solution but do not offer users the security that data rooms offer. However, they do allow users to carry out their due diligence during M.&.A’s without asking their clients to bear the costs of a virtual data room service.
However, are these solutions suitable for equity operations? Does this really simplify the due diligence process? How much risk is involved in terms of data integrity and party liability during mergers and acquisitions?
PREPARATION OF DOCUMENTs
Firstly, these "cloud" solutions do not offer users help to operate smoothly the sell-side part of the tree structure, document loading, team and user creation or access rights configuration, for example. The seller and their advisors must take care of these daunting operations themselves, without added value. What is more is that these ordinary solutions are not adapted for the following needs:
- the renumbering of folders and sub-folders must be done manually
- teams must be created one by one
- it is impossible to choose the access rights or timeline of users
These points may seem insignificant, but when put together, they constitute a real slowdown in the preparation phase of due diligence and have a huge impact on M.&.A. deals in real time. Today these features and services are inbuilt in the services provided by virtual data rooms.
DOCUMENTS CONSULTATION BY POTENTIAL BUYERS OR INVESTORS
An M.&.A. deal comprises of several phases (indicative offer, short-list offer, binding offer, exclusivity) and involves several participants with different specialities (corporate, social, brand, tax, etc.) in the realm of corporate finance. These two stages require a detailed management of user access rights depending on the stage of progress of the sale process and the area of intervention of the various stakeholders. While online box or drive solutions allow, for the most part, the management of rights by folder, the management of rights by user is not facilitated by these solutions. Also, the necessary guarantee of secure file sharing and document security is not guaranteed.
Moreover, these ordinary cloud solutions are not an effective means of ensuring the integrity of shared data for potential buyers/investors. As mainly American software providers, they are among the companies in the spotlight of the European Union and new GDPR regulations which were legislated to monitor data security. The subject is all the more consuming as American legislations like the ‘Cloud Act’ or the ‘Freedom Act’ mean that data privacy for all business deals are in conflict with these legislations.
FINALISATION OF THE DEAL
Unlike some tools such as datarooms, consumer solutions do not provide users with statistical graphs that allow them to understand the files and documents most consulted by the party making the purchase. As a result, users cannot adequately prepare for possible questions during deals about these documents. Nor can they compare the activities of the different teams and thus have no complete overview of the interest of each. By contrast, data rooms now offer statistical graphs showing in real time connections, consultations, downloads, questions and answers. In the context of a deal involving several buyers or potential investors, these functionalities are critical during M.&.A. transactions.
Once the deal is finalised, it is possible that the acquirer will activate the ALM (asset and liability guarantee). For example, it can accuse the transferor of concealing a debt. The seller who has used a general cloud solution will then have no proof at their disposal to show that they have made available all the documents necessary to identify the debt in question. Exports included and systematically carried out by suppliers of virtual datarooms constitute tangible proof, especially when they are certified by a bailiff.
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published on 2019/26/04