Whether you are gearing up for an acquisition or are in the early rounds of fundraising, one of the most valuable tools is often the most overlooked: the use of a Virtual Data Room (VDR). VDRs are not uncommon (gone are the days of physical data rooms) – rather, the planning of a VDR tends to be an after-thought. The pressure to create one from scratch, with a potential transaction looming, can be daunting.
Regardless, whether dealing with a potential buyer or investor, a common expectation among the parties is to see the same types of documents when conducting due diligence. Establishing a well-organized and comprehensive VDR ahead of time is an invaluable way to ensure that future transactions are assessed on their merits, while promoting transparency in the eyes of the counterparty.
The due diligence process can be tedious and complex, but neglecting to organize the process can potentially be fatal to a transaction. VDRs are a great tool to streamline the process and can be created at any time. In fact, establishing the framework and structure ahead of time will allow your team to focus on more important issues as deadlines approach. Whether this is your first transaction or you are a seasoned veteran, the following are some key details to consider when establishing a VDR:
- Know your audience: What documents would you like to see if the situation were reversed? What are the areas of concern that an acquirer or investor has voiced during the negotiations? Flag documents and materials to populate your VDR that will address these issues head-on.
- Ask your advisors: Most legal or financial advisors will have been involved in transactions that are similar to what your company is dealing with. It may feel novel to you, but the majority of transactions follow a similar trajectory and a standard form checklist can be provided by your advisors to get things started off on the right path.
- Appreciate the nuances: Transactions can be similar but there are going to be specifics that are unique to your company. Identify these differences and address them in the materials you populate your VDR with. Tailor the information as necessary. Can sensitive information be redacted? Do all parties need access to certain documents? These are among the considerations to have in mind.
- Shop around: There are a number of VDR providers available and many of them have different functionalities or pricing structures. Canvas the market and pick the right provider for your specific transaction / budget.
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