What Is A Virtual Data Room For M&A Transactions?

A practice note is outlining important factors that corporate counsel should take into account while employing a virtual data room (VDR). Common VDR characteristics, time issues, and setting up, filling, maintaining, and concluding a VDR in a merger or acquisition transaction are among the subjects discussed (M&A transaction).

Utilizing VDR in M&A Transactions

A VDR is a document repository that is often in the cloud and used by enterprises to store and share sensitive information. See Practice Note, Cloud Computing: Understanding the Business and Legal Issues for details on cloud computing and related legal and business implications.

According to Practice Notes, Due Diligence for Public Mergers and Acquisitions, and Due Diligence of Private Mergers and Acquisitions, the main purpose of VDRs in an M&A transaction is to speed up the M&A due diligence review process.

Corporate lawyers are frequently asked to host a VDR or to provide clients advice on hosting one during an M&A transaction. Although VDRs differ depending on the provider and package, the overall procedure for hosting a VDR is frequently the same.

What does VDR Include?

The supplier, as well as the kind, scale, and sector of the M&A transaction, determine the specific VDR characteristics. In general, all VDRs enable counsel to carry out the following actions:

  1. Upload and save the client’s private documents (see Adding Files and Folders to the VDR).
  2. Invite the data room’s permitted visitors (see Inviting Parties to the VDR).
  3. Monitor user activity in the data room to gauge interest (see Using a VDR Report).
  4. Base access restrictions on a user’s level of authorization for certain folders and files.
  5. Manage who has access to view, print, or download a certain piece of data.
  6. Prevent users from viewing other parties in the data room.
  7. Customize the VDR’s watermarks to watermark files for security and to prevent copying.

The majority of VDRs also come with the following common features: A fully customized clickwrap nondisclosure agreement (see Setting Up a Clickwrap NDA in a VDR).

The VDR room’s potential to be customized:

    1. A secure built-in messaging or question-and-answer system within the data room store and distribute queries and answers.
    2. The capability of updating and redacting files.
    3. Allowing consumers to download files but afterward denying them access to certain records (for example, after the M&A transaction closes).
    4. If necessary, consult with a senior team member or the client.
    5. For the individual M&A transaction, extra features may be useful.

VDR Use in the M&A Transaction Phase

Consider if an internal client folder and file preparation is required before beginning an M&A transaction. Counsel can manage this process in a VDR depending on the workflow, either within the staging phase or utilizing a specific preparation folder. The particular procedure is determined by the preferences of the council and the VDR’s functionality.

Even if the VDR is completely filled out and set up for the M&A transaction, it is not advised to accept other users (such as potential purchasers and their representatives) until at least the following steps have been completed.

Verify with the client that the M&A deal is prepared to go on to the due diligence stage. Send a teaser to invited bidders if the M&A transaction is an auction (the sale of a firm where the seller seeks competing offers), and wait until prospective buyers have responded with indications of interest based on the teaser. A teaser is a marketing piece that provides a quick overview of the business or target firm that is up for sale, frequently without disclosing which one it is, and highlights a few characteristics that make the purchase appealing. Practice Note, Auctions From the Seller’s Perspective, has more details on seller considerations in auctions.

Verify that each prospective buyer has provided you with a signed confidentiality or nondisclosure agreement (NDA).

Following the completion of these processes, other users, such as prospective purchasers and their agents, may be given access to the VDR.