How to Convey Due Diligence Information to the Buyer in an M&A Deal - dummies

How to Convey Due Diligence Information to the Buyer in an M&A Deal

By Bill Snow

In days of yore, back when the slide rule and rotary-dial phone ruled, M&A deal-makers conducting due diligence would sit in a room, informally called a data room, with a stack of financial statements, contracts, and all manner of information, and slowly but surely confirm what they needed to confirm.

This task wasn’t fun, but thanks to the invention of the internet, the insanity of the physical data room ended. The M&A deal-makers of today use an online data room (sometimes called a virtual data room).

An online data room has numerous advantages over the old fashioned “a bunch of documents dumped in a cold, impersonal room” approach, including the following:

  • Seller can control who sees what information and when.

  • Buyer can conduct due diligence from the comfort of his cold and impersonal office instead of traveling to Seller’s facility and sitting in her cold and impersonal office.

  • Multiple people from Buyer’s side can access the data room. Seller only needs to grant them access (user name and password).

  • The online data room acts as a central depository. This function cuts down on multiple people from Buyer’s team making the same request over and over.

  • Seller can monitor who from Buyer’s team has accessed the online data room and which documents those people have reviewed. This helps Seller gauge Buyer’s seriousness. Is he looking at all the information or just certain bits — say, the customer list?

  • Seller gets a level of security. Documents loaded to most online data rooms have a watermark displaying the name of the user, the date of access, and the IP address. If Buyer breaches confidentiality and gives the due diligence materials to someone not approved by Seller, the documents clearly point out the person responsible for the breach.