Numerous studies have shown that a more efficient and better managed dataroom, disclosure and due diligence process can lead to higher acquisition prices and higher closing success rates for the sellers of midsized companies.
First, what is an online dataroom? It’s an online area that allows infinitely customizable and secure storage of data and documents, for viewing and transferring critical due diligence files and information. In terms of its purpose, an online dataroom is a tool to assist in the process and tracking of document flow between parties in a transaction – if managed correctly, it offers numerous advantages for both buyers and sellers: i) more likely to get a deal to the finish line; ii) fewer disputes; iii) close in less time, iv) higher likelihood of success; and v) a higher sale price.
Some may consider an online dataroom to be an unnecessary tool, others may consider it a benefit, but at ClearRidge, we feel that it’s now an essential part of the sale process. In this blog, we’ll highlight some of the reasons why:
- Security and document control: with a full audit trail of every click of every user, you not only have better security, but you can also resolve disputes over information received and reviewed, have a better understanding of the prospective buyers and the attention they are giving to each document and the entire process.
- Higher likelihood of closing in a faster time: the shorter the process, the higher the likelihood of closing and while there are innumerable hold-ups in an acquisition process, many of them can be avoided. More efficient management of information requests reduces the time needed for due diligence.
- Higher prices paid: Prompt and accurate information flow provides greater responsiveness to buyers’ questions. Better informed buyers = less uncertainty = less perceived risk.
- Multiple interested parties: You can concurrently manage multiple bidders without any of them being aware of, or seeing who else is involved. You can seamlessly introduce new parties to the dataroom or remove existing parties with the touch of a button. You can also efficiently run a controlled auction process with all bidders on a level playing field in terms of information they have received.
- Cost savings for the buyer: A well-managed dataroom and due diligence process means fewer visits to a company’s physical location for the buyer’s due diligence team (financial, tax, IT, HR, environmental, benefits and several other third-party providers who assist in due diligence). A dataroom can also reduce a buyer’s attorney fees and reduce the time it takes to create and agree upon schedules in the final purchase agreement. This all comes at no additional cost to the buyer or seller – the cost is borne by the investment banking firm representing the seller.
- Less disruption to the seller: If the buyer’s due diligence team spends less time on site at the company’s facility, it also means less disruption to the seller’s business.
- Cost savings for the seller: in addition to those cost savings referenced above, a dataroom allows for accurate and more efficient communication within the seller’s deal team of advisors (management, investment banker, attorney, tax and accounting professionals).
- Revisions and updates: Documents can be revised, updated and instant email notifications sent to all users to review the revised version.
- Access rights: You can control access rights and viewing options of each file by each individual, from being able to view documents online only to having download access to a fully editable file. A dataroom can and should be customized to suit the unique needs of every acquisition process, the sensitivity of each document and each user accessing the dataroom.
- An online dataroom is available 24/7, which eliminates scheduling issues and assists with busy work schedules – it’s particularly useful now that we’re seeing more active international buyers in many transactions.
- A dataroom can also assist in compliance with federal and state securities laws, with the full audit tracking functionality, but now we’re getting onto a different topic.