Virtual Data Room Blog

Fascinating to see how different markets are and evolve.  Virtual Data Room usage is finally taking off in Greater China. However, the adoption curve is very different than in other markets.

In most markets, data room adoption has been started by usage in M&A transaction.  Typically multiregion or multi-bidder.  In each region, once a the professionals in a market start adopting the data room concept, usage trickles down (or up) to other uses, such as local M&A transactions, joint venture, board rooms, and IPOs.

Our experience in the Chinese market is different.  Although there have been a number of large cross border transaction using data rooms, the level of adoption until very recently has been lower than in other markets…. Until very recently…..

IPOs are leading the adoption of virtual data rooms.  As Mainland China corporations list in Hong Kong and abroad, they find the use of a virtual data room very instrumental to run an effective process.  Once they have been successful using the data room in an IPO, companies are much more open and think of other potential uses as M&A, joint ventures, etc.

With our local partner HeterMedia with whom we recently signed a strategic partnership, we are being seeing a very good number of  IPOs going that route.

Increased M&A Litigation

The effect of the big economic downturn that we have experienced in the last few years is now being reflected in an increased number of lawsuits and litigation processes related to many M&A transactions.  For example, according to a Reuters article, the number of M&A related court cases in the UK has multiplied X 6 in the last year.   This only includes the number of cases that are actually taken to court, many are settled before that.

Sellers are suing buyers, buyers are suing sellers, investors are suing shareholders and management..

We believe that the main driver by this increase is that when things are tough, mistakes and disagreements gro stronger.  As Warren Buffet puts it, when the tide goes down, you discover who has been swimming naked.  However, from our experience, we also believe that a good dataroom can help sellers, buyers and investors to significant reduce the risk and cost of M&A litigation.

Dataroom Impact on Litigation

Different aspects of a dataroom can reduce the risk and impact of M&A litigation:

1. Document organization. Anyone that has been involved in a M&A dispute will testify of the importance of a clear document structure with a solid numbering system.  We strongly believe that the best way to organize a data room is by keeping the folder and subfolder structure that we are all so used to.
2. Accountability. A good virtual data room can certify that the documents shared with investors have not be changed and that they have been available during a period of time.  Moreover, some of the best datarooms offer auditing and reporting capabilities that provide detailed information and audit trail about all the documents and users in a virtual data room.
3. Data Room as eBible. Historically, when a transaction closes, the participants receive a data room CD/DVD with all the documentation related to the deal including audits and reports.  Although DVDs are useful,  an online Deal Bible solution is much more effective as it provides assurances that the data has not been changed and cannot be lost.

What is a Dataroom? How should you choose a dataroom provider?

Very educative perspective from  Law.com describing what a dataroom is and covering the main service and platform functionalities that a Virtual Data Room provider should give its M&A client (article).

One of the areas that we as a Company differentiates us from many of our competitors is our approach to service.  This paragraph from the article is particularly interesting to us:

Regardless of whether you choose a technology solution with the expanded features of a virtual deal room or the more traditional virtual data room format, it is essential to determine whether a provider has an accessible and knowledgeable technology support and services team. The role of the support team is not only to help you expeditiously implement the VDR technology for your firm, but also to help you apply it to your deals and transactions to yield more efficiency for all involved parties.

Most providers should be able to set up VDRs within 24-48 hours, and many can do same-day setup. Others allow you to initiate your own deal room whenever you need one simply by selecting “New Deal” on the VDR menu. To ensure ease of use and convenience, you should determine whether your VDR solution has any software downloads or system requirements. Ideally, the VDR should place as few demands as possible on users. Confirm the availability of technical support to help administrators and users should they encounter any questions or problems to troubleshoot.

The VDR support team needs to be knowledgeable not only about the technology they provide, but also should have familiarity with corporate transactions and the responsibilities of the respective deal team members. This expertise ensures that the provider can tailor the technology specifically to your needs. Furthermore, the VDR provider must be able to handle the support needs of the other deal team members when needed, and interact professionally with all deal participants.

Do Virtual Data Rooms add value in transactions?

This used to be a discussion point two or three years ago although it is mostly now commonly agreed that a dataroom is not a good thing to have but a must for a transaction.

Very good research article by Dr. Christopher Kummer and Vlado Sliskovic of the Institute of Mergers, Acquisitions and Alliances about the impact of datarooms in M&A.

Although it is a little dated, it is a must read for anyone involved in due diligence.

Datarooms have become prevalent in most M&A transactions in the last few years.  However, once in a while, we still hear arguments against using a dataroom.  The  main ones are:

“I don’t like using a dataroom, I hate to read documents on the screen”

Reviewing deal documentation on a computer screen can be inefficient. Many users stated that their speed efficiency declines when they read on the computer screen as compared to when they read on paper. Staring at a computer screen can be tiring to the eye.

Some virtual dataroom providers limit their security only allowing users to see the information in a viewer.  We believe that it is much more efficient to leverage technology solutions that allow users to download and print documents while keeping all documents secured using dynamic watermarking and remote document control.

“I don’t want to lose control of our documentation”

There still seems to be the perception that if you share your confidential documents online, you are losing control of what you share. That would be true if you email your documents to anyone. However, most Virtual Data Room providers protect your documents even when you share them online allowing you in some cases to remotely revoke access to documents.

“I don’t like using a dataroom, it is too slow”

Most M&A transactions generate a significant level of conversation traffic related to the due diligence materials and process. Some of these questions are general to all parties, but most are unique to each bidder or investor.

Managing the Q&A process in the traditional way (meetings, emails, word documents, conference calls) is lengthy, cumbersome and inefficient. Hence make sure that whichever dataroom provider you use, they have an effective Q&A module in place.

Most market leading datarooms introduced some level of Question and Answer (Q&A) functionality in the last couple of years. Automating the communication process through a Q&A module makes everything simple in a dataroom. When the process comes to an end, audits and compliance should already be in place so that no additional effort is required.

However, the adoption of Q&A functionality in datarooms has not yet taken off. We believe that most of the virtual data room providers have missed the mark on this area by over engineering the solution that they offer.

We introduced our Q&A module more than four years ago. From our direct experience with clients, we think that there is one major factor that make a successful Q&A module within the confinements of a secure dataroom: SIMPLICITY. No matter how sophisticated the technology at the backend, the user should find it extremely simple to ask questions, and the administrator should find it even simpler to respond to them while keeping confidentiality in place.
At any stage in the project, if the administrator wants to view all the questions and answers that have been raised by any user related to any file, folder, or topic, the Q&A module should be advanced yet simple enough for this information to be analysed within a minute!

The clean energy sector keeps moving.  The last couple of days have been filled with important news for the sector. Interest seems to be coming from all areas, some examples:

-  Google´s investment to develop what will be the backbone to distribute wind generated electricity in the US mid-Atlantic region

- All the positive messages coming from advisors, and funds.

- Recent flury of acquisitions and investment in the industry.

Datarooms like the Green Movement.

During the last two years, the clean tech business has been a very important client for the sector, for fund raising, M&A and IPO´s.  These datarooms are usually very document intensive and are open for a longer period of time than other sectors.

A Virtual Dataroom helps the environment.

Virtual Datarooms save energy avoiding many of the useless flights by advisors to remote locations.  VDRs generate les paper.

How many passwords do you have? When was the last time you changed it? Do you use your daughter´s birth date or your name written backwards?

We all have an increasing number of passwords for all the websites we access on a frequent basis. Having a safe and easy system to set and maintain passwords is key to keep information secure. Keeping a secure but easy to remember password is key to keep a dataroom secure. Dataroom providers set password policies such as password shelf life, password length, as well as mix of characters to include, and words to avoid.

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Uses of Dataroom Services part II.

Venture Capital and Private Equity funds can greatly benefit form using a virtual data room. This benefit goes beyond the now very established wide use of Virtual Data Rooms for a sell side process.

The operational areas that can benefit from using a VDR are:

- Fund Raising

- Investor Reporting

- Fund Management

- Portfolio Monitoring

- Sell side Data Room

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The last few weeks have been very intense in the Virtual Data Room industry worldwide with in increasing number of transactions (finally).    There has been a significant change in the make up of the data room users with private equity becoming much more important in the buy side.

Bloomberg has covered this in two recent articles from two different approaches.  The first one argues that the increasing appetite of many funds is driven by the “deploy or return” situation that many funds are in.  The second one (Pass the Parcel…) claims that the significant amount of rollover deals benefits funds but not so much LPs.