Here’s all you need to know about virtual data rooms and how they are the key to your business success. Nerdcore Computers are here to unveil the myths & mysteries of virtual data rooms, answer your most asked questions and take you through important checklists for companies and advisors.
Removing the myths & mysteries
From M&A through capital raises, audits, strategic reviews and tenders, material outcomes depend on virtual data rooms. But data rooms aren’t created equal. What sets a modern data room apart from legacy rooms:
More than storage and file sharing Data rooms aren’t just about collecting, collating and storing information. Modern virtual data rooms integrate with other platforms to allow two-way syncing and drag-and-drop functionality that can get a room up and running in minutes. Granular access privileges, print and save controls, tracking of all actions, reporting and sophisticated Q&A enables seamless collaboration. Artificial intelligence powers and automates smart analytics on the motives and behaviour behind people’s activity.
More than manual labour and guesswork Artificial Intelligence and automated scorecards not only automate reporting, they predict outcomes with 97% probability within seven days when using a virtual data room for selling an asset. Workflows and processes developed by experts enable advisors and companies to prepare for deals fast and get to work immediately on driving their desired outcome. This saves significant time and money compared to generic tools and processes. Pathways that are reverse engineered from thousands of deals outline what is required - in quantity and quality - in a path to follow for proven success in critical transactions and deals. Only highly advanced data rooms remove the guesswork as to what documents and steps are needed to prepare for and complete a transaction in line with an investor’s or buyer’s requirements.
More than fixed pricing plans and feature packages The Nerdcore Group offers dynamic, pay-as-you-go pricing with entry level plans encourages teams to start securing better outcomes earlier through readiness. Whether for a single user or a small team, pricing scales as the opportunity and requirements do, in a predictable and controllable way. Many vendors contract data rooms off a three-month proposal, leading to pricing surprises as most events run for more than nine months. Look for month-to-month pricing or a discount on an annual subscription to be safe. Customers not wishing to start with a full ‘bells-and-whistles’ virtual data room can now start earlier with a core data room offering, adding features and users they need as the opportunity progresses through convenient add-on packs.
More than limits on data size Legacy data rooms trouble users with information limits and a price tax when they exceed that limit. Some even charge unpredictably based on how many pages you load. Modern data rooms enable you to load as much, or as little, information as you need, so you can budget costs accurately.
More than a transaction tool Modern data rooms position you to get ready, run and realize value from more than just an M&A, asset sale or capital raise. Companies lower the cost of ownership and leverage data room capabilities for instilling operational discipline, governance and risk management around material information necessary for audits, compliance, tenders, post deal integrations, readiness, investor reporting, board communication and more. Lack of functionality, no integration with cloud storage, complexity of use and pricing based on information limits imposed by legacy rooms - all combine to create roadblocks for companies to prepare for and achieve optimal outcomes.
What is a data room?
A data room is a physical or virtual space where one party can disclose confidential information in a controlled manner to a number of other interested parties. Data rooms are used frequently during mergers and acquisitions (M&A) where a seller and their advisors need to facilitate due diligence and reveal information about their company or asset to several interested buyers at the same time.
What is a virtual Room?
A virtual data room (VDR) is a virtual space that acts much like a physical data room except that all data is hosted securely online with security controls over information and reporting on usage. In the days before virtual data rooms, M&A potential buyers would need to visit an actual room in person to review stacks of critical documents and paperwork. Today, multiple potential buyers can access confidential information simultaneously online.
Why use a virtual data room during M&A?
Data rooms make the entire M&A due diligence process easier, more efficient and safer for everyone involved. They allow the sell-side party to keep full control over how and when information is revealed and to whom. The sell-side can also manage all communication with their bidders through the virtual data room. When the deal is done, they offer a full audit trail of disclosure through a single digital archive of all activity.
What is due Diligence?
Due diligence, as it relates to M&A, involves the disclosure of information by the sell-side to prospective parties. It is the process to ensure each party involved is exposed to all relevant facts before making any final decisions on the deal.
The term originated in the United States Security Act 1933, where any broker accused of inadequate disclosure was protected from liability if they could demonstrate that they had performed due diligence. Naturally, to avoid risk this practice soon became the industry standard.
It is now the norm for companies to make a legal and voluntary disclosure of all sorts of information to help potential buyers form a clear picture of their current operations and future prospects. Interested parties are then able to make informed and intelligent business decisions.
What happens during due diligence?
Documents concerning the past, present, and future prospects of the business are made available to each bidder during due diligence. The aim is to be as open and transparent as possible, while still protecting the interests of the business.
Care needs to be taken, as interested parties could include the seller’s direct competitor or perhaps a new company entering the industry. Equally, the deal may at any time fall through or be called off. In the case where the deal does successfully go through, there is a duty of care to ensure that unsuccessful bidders aren’t left with information that could be used against the new owner.
For this reason, extremely sensitive information may be held back until the final stages of negotiation when it is clear which bidders are serious about making a deal.
Is there really any difference between data room providers?
Yes! There are many products on the market that often get labelled as ‘data rooms’ but are in fact more like simple file sharing. When it comes to M&A, they are ill-equipped to offer the level of security, collaboration tools, reporting and flexibility needed in the typical high risk low trust environment of M&A due diligence with bidders who can be the selling companies direct competitors.
Products can vary from the very basic, with minimum security and rudimentary filing structure and navigation, to more sophisticated, highly secure and at times, very complex setups. Going with generic file sharing and storage tools is a false economy as the lack of features creates inefficiencies that result in higher transaction costs and waste time of busy management teams who should be maximizing focus on running the business while a transaction is occurring.
Why not just use a basic data room for deals like M&A?
Basic data rooms are great for sharing files between offices and disclosure. However, during M&A when a seller wants greater control over who sees what and when, with greater visibility over potential buyer behaviour in the data room it pays to invest in a data room built with the specific M&A workflow and process in mind. At first glance, it might seem that a simple secure environment is all that is needed to share documents during your deal. However, beyond document storage you need to consider how easy it is to upload and download documents, to integrate with Excel and email, to set security for different users, to change access quickly if the mood changes during negotiations, to shut down access in an instant if the deal is called off, to analyze reports to focus on risks, and to restrict access to some parties and not all - for instance, if a close competitor is in your data room. Even seemingly simple things like how documents are indexed and numbered can cost hours and thousands of dollars, whereas a data room can do this automatically to best practice standards that advisors and investors require. In short, the impact on every users experience for both buy side and sell side teams translates into greater efficiency, confidence and outcomes or significant frustrations, stress, risk and inefficiency. The right tool for the job at hand is a critical decision.
What are the risks in using a file sharing system vs a fully fledged data room?
Simple systems are intended for simple usage. They can fast become a headache when used for anything more. Limited functionality can cause a huge waste of time and potential security issues for all involved.
Why use a data room such as Nerdcore computers designed for deals like M&A and raising capital?
By using a specialist data room, you will find features built specifically to make the M&A due diligence process easier and more secure. What you won’t find is a bunch of stuff you will never use cluttering up the page and slowing down the system.
That means potential buyers accessing your data room will see a professional looking system where they can find the information they need to make their decision fast.
Great news if you are the one selling!
What's the best way to manage Q&A?
Some people choose to run Q&A outside the data room using complex Excel spreadsheets passed back and forth over email. On each buy-side team, long lists of questions are compiled and sent to someone on the sell-side. That person then has to review the list and send out clusters of questions to different people in their team to review and respond to. When they receive answers bit by bit from different people they have to continually update their spreadsheet and forward the relevant answers to the relevant buyers. If this sounds like a chore, then you would be right! It’s the single, most time-consuming part of the M&A process. This is where ‘M&A’ can equal ‘Misery & Angst’! This method is complex, laborious and risky, with question and answers often getting duplicated. There’s the continual risk of sending the wrong information to the wrong person, potentially outdated spreadsheets being in circulation and the creation of an understandably complicated audit trail across numerous email accounts. It can be overwhelming. Thankfully there is a better way. With all Q&A-related documents being held within the data room, it makes sense to run Q&A here as well. Nerdcore Computers offer a Q&A process designed exclusively for M&A to help centralise Q&A workflow and make life easier and safer on both sides of the deal.
What should i look our for when choosing a data room for M&A? Access
Can you easily connect your data room to drag & drop or automatically import documents from other systems and Cloud storage solutions?
Will documents imported from Cloud storage solutions automatically sync for constant updating?
How easy is it to open and view documents?
Do you need to download any sort of viewing software?
Can you and your potential bidders access the data room from all operating systems and devices with the same ease or are there any restrictions/caveats?
How fast and easy it is to change access by user or user group if needed?
Can you change who sees what, or do blanket security settings apply?
Do you have flexibility on watermarking, document access, printing, saving, revoking access by user?
Is the system easily scalable to suit any size deal?
Ease of use
How fast and easy is it to get the data room up and running?
How easy will it really be for multiple users to log in from different time zones and operating systems?
How intuitive is the system to navigate around?
What systems are in place to help save time, such as bulk upload and download?
Does the Room come pre-provisioned with workflows and processes?
How much control can the data room offer over workflow?
How easy is it to get a clear overview of all activity within the data room?
How sophisticated is the search facility?
Can you search within documents as well as across headlines?
Can you search for terms within PDFs as well as Microsoft Office documents?
What reporting tools are available?
What format will reports come in?
Does the Room use AI to automatically predict outcomes and score activity?
Are easy-to-view and use dashboards included?
Does the Data Room feature scorecards that automatically show you how your transaction is progressing and the status of documents?
Q&A for M&A
How easy would it be to run Q&A through the data room?
Can you easily create scorecards and templates for the transaction?
Will you still need to use email and spreadsheets for tracking and Q&A?
Can you easily assign people to review documents, Q&A and information?
Does the Data Room offer threaded commenting?
Does the data room offer 24/7/365 support if needed?
Where is the support based geographically?
What kind of support is available – just technical, or is more strategic expert support available?
How fast will they respond to your enquiries? In what format?
How is the cost of your data room calculated?
Are there any additional fees that could potentially be added as the project moves forward?
What happens if your deal gets delayed or even cancelled?
What happens if you exceed information limits?
What happens if you need to scale-up or scale-down users?
Can you get access to monthly pricing?
What independent security accreditation does the provider have?
What other security measures are in place to keep data from falling into the wrong hands?
How foolproof is the audit trail?
What experience does your provider have in the M&A space?
Have they ever worked on a deal like yours before?