Introduction
If you are selling your business or raising funds, one key aspect will be due diligence i.e., a buyer or finance provider looking under the bonnet to see what they are getting for their money. Historically, hard copies of documents would be stored at a location and reviewed manually. That all changes with advent of technology which allowed documents to be stored and reviewed online
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Why choose a Virtual Data Room (VDR)?
Due diligence is quicker and more efficient with a VDR: all your documents can be placed online in a searchable, secure environment. All parties to the transaction can simultaneously and easily view all relevant documents.
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Finding a provider
There are plenty of options out there. Do your research and speak to your professional advisors to find the right Virtual Data Room for you. There are different pricing models available so it’s important to understand your requirements to make sure you get the right fit for your deal.
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Security and access
The Virtual Data Room will store highly sensitive commercial information which needs protecting. Make sure your provider has top quality security in place including multi-factor authentication via mobile phones for extra protection. It’s a good idea to work with a provider which leverages security platforms from tech giants such as Microsoft (on their Azure platform) as this means you are taking advantage of billions of dollars of investment in data security at relatively low cost to you.
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Access
Controlling access is key. Your provider should be able to provide tailored access to the VDR: full, limited or even no access as the circumstances require. You should expect to protect documents by view / print / download. Some of the more sophisticated products are even able to protect Excel documents within a secure Microsoft 365 Viewer.
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Searchability
One big difference between an old school data room with hard copy documents and a Virtual Data Room is searchability. Choose a provider that can give you powerful tools to search and correlate documents.
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Q&A
A key advantage of using a VDR is that it should facilitate the Q&A process between buyers and the seller. It is important that you speak with your provider so that you understand exactly how the software you choose will fit into the process you are running.
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Reporting and Analysis
A good Virtual Data Room will have reporting and analysis tools which will allow you to understand exactly the points on which your buyer or buyers are focussing. If you are running a process with multiple buyers, you can gain valuable insights into which buyer is showing the keenest intent. The more sophisticated tools on the market will surface reporting data in the way you might expect from powerful business reporting software. Reports should also be downloadable to Excel.
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Support
Some providers provide a ‘software only’ approach, meaning that you will have to manage all aspects of the VDR process from your desk. This might be fine for very simple processes, but as M&A and fundraising processes can be very time-consuming and complex, it might be better to work with a provider which offers higher levels of service which means they can manage some of the heavy lifting for you.
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Deal closing
At the end of any process, it will be necessary to provide the parties to the deal with an archive. You should check with your provider that they are able to do this in a secure manner and that they are able to provide a comfort letter which warrants that the contents of the archive accurately reflect the contents of the Virtual Data Room at the point of closure and as disclosed to the purchaser.
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Recent developments – machine learning and AI
The more sophisticated providers are now either providing their own Artificial Intelligence (AI) tools or offering integrations to established legal-tech AI providers. Functionalities to look out for include automated categorisation of documents, automated redaction of sensitive terms and AI-driven red-flag analysis of documents. Of course, you may have to pay more for these ‘value add’ technologies. Expect much more from this kind of technology over the next few years.
Written by Rich Hinchliffe
Principal at My Inhouse Lawyer
One of our values (Growth) is, in many ways, all about cultivating a growth mindset. We are passionate about learning, improving and evolving. We learn from each other, use the best know-how tools in the market and constantly look for ways to simplify. Lawskool is our way of sharing with you. It isn’t intended to be legal advice, rather to enlighten you to make smart business decisions day to day with the benefit of some of our insight. We hope you enjoy the experience. There are some really good ideas and tips coming from some of the best inhouse lawyers. Easy to read and practical. If there’s something you’d like us to write about or some feedback you wish to share, feel free to drop us a note. Equally, if it’s legal advice you’re after, then just give us a call on 0207 939 3959.
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