Over the last years, virtual data rooms have begun to be used in M&A transactions on a constant basis. Therefore, it’s essential to understand what data room software is, what providers you can rely on, and how they may contribute to your M&A deals. But first, let’s determine what exactly M&A is.
M&A transactions, or Mergers & Acquisitions, are transactions that, along with the transfer of ownership, imply a change of control over the company (Corporate Control). The concept of acquisition covers the acquisition of the entire enterprise, its individual parts, as well as a strategic participation in the capital (direct investment). Mergers, in turn, represent a special form of a takeover, in which the acquired company is deprived of legal independence. In the event that, during a merger, both participating companies lose their legal independence and become part of a new company, one may often talk of consolidation.
The purchase of an enterprise is usually carried out through the purchase of shares (also called Share Deal), which are offered either in the exchange or in over-the-counter trading. When purchasing legally dependent participation interests, the alternative is the transfer of the corresponding property items (also known as Asset Deal). In contrast to the Share Deal, with an Asset Deal, there is a certain opportunity to carry out the transaction without its approval by the general meeting of shareholders.
To conduct such transactions, it is necessary to ensure that the transfer of confidential information takes place in strict accordance with existing requirements, and does not fall into the wrong hands. And that’s where virtual data room providers can help!
A virtual data room is a web-based data repository that can be used by people who are at a considerable distance from each other. Several people can work with documents at the same time, at a convenient time for them; the rights to access information, if necessary, can be changed and edited.
The most common use of online data room software is, for example, when the transfer of confidential information is required for:
- analysis of enterprise reporting;
- formation of a complete archive of documents;
- audit activity;
- M&A transactions;
- selection and preparation of information for investors, etc.
And now, let’s take a closer look at data room services in the context of Mergers & Acquisitions. Everyone interested in such deals gets access to a standardized set of data beginning with due diligence. This is a complex independent assessment of a company initiated by an investor who plans to enter the authorized capital or an owner who wants to receive an expert assessment of assets and an analysis of the correctness of financial reporting. In particular, a VDR due diligence provides:
- general information about the company: statement of registration, articles of association, information about company executives, company structure, affiliated companies, etc.;
- data on the property status and liabilities of the company: information on the available short-, medium- and long-term liabilities (indicating debtors and creditors, interest rates, payment terms), a list of all tangible and intangible assets, mutual obligations within the company, etc.;
- existing agreements with the collective and trade unions in the framework of labor legislation, retirement benefits, etc.;
- accounting reports: annual and quarterly balances, income statement, auditor’s report, etc.;
- other contractual obligations and rights: contracts within the company, lease contracts, agreements with customers and suppliers, etc.;
- information about possible legal processes (civil, tax, labor, administrative, etc.).
To conclude this data room review, it is worth pointing out how exactly and for what you and your partners can use VDRs:
- Transfer important documents in the same structure that is on your computer. Change the file structure as desired, right within the system.
- By default, each document uploaded to the VDR is available only to its creator and no one else. It’s an essential aspect of all the best data room providers (such as iDeals, Firmex, Ansarada, etc.). You can set the access manually and share documents with your partners from any part of the world.
- The data room system creates the required number of copies for each user at each moment of access to information. You can see who, when, and from what device accesses the document.
- Thanks to protection algorithms, each document contains information about the employee to whom it was issued. Having found such a document in the public domain, the company can easily determine the culprit of the leak.
Thus, electronic data room software solves issues of time, cost, security, and ease of access to documents.