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Decorative pattern

Data room best practices: enhancing M&A deal-making efficiency

December 2023

 

M&A deals in the UK in 2023 have fallen in volume and value compared with 2022. The challenging economic climate and ongoing inflation and interest rates concerns have caused a ‘wait and see’ approach. But the biggest reason for a subdued M&A market is the reduced number of ‘megadeals,’ largely due to increased regulatory scrutiny.

There is likely to be an increased focus on smaller M&A deals in 2024. The widespread view is that opportunities for developing and growing businesses afforded by M&A can be equally achieved by smaller-scale, well-planned and executed deals in the current financial and regulatory environment. This reflects a more cautious approach to risk management and accentuates the need for astute and efficient deal-making.

 

Deal-making requirements

Regardless of the size of an M&A transaction, successful outcomes depend on efficient deal-making. Several studies show that between 70 – 90% of M&A deals fail. The main reasons for failure are poor preparation and execution, with overlong and inadequate due diligence and poor communication cited as key factors.

M&A deals depend on perceptive decisions based only on good-quality information. Knowledge is power: without accurate information, good judgements are unlikely to be made, especially in volatile market conditions. Poor communication between deal participants can sour relationships and erode trust, neither of which are conducive to effective deal-making.

Virtual data rooms have a central role in M&A deal-making because their capabilities provide efficiencies that solve these potentially deal-stopping problems. Virtual data rooms are prime examples of the digital tools and accelerators featured in a recent report from Deloitte. They facilitate insights into the company being acquired by improving the quality of due diligence, thereby reducing uncertainties and risk and speeding up the process.

A data room has multiple tools that, if used effectively, can enhance M&A deal efficiency and decision-making.

 

How data rooms enhance the efficiency of M&A deal-making

M&A deals are highly complex and can be overwhelming for buyers and sellers alike. Below, we look at how data rooms provide a secure environment where deals can be conducted in an efficient, confident and transparent way.

Centralisation:  A central hub of information can be stored and organised in a data room that all parties can access at any time from wherever they are. Information doesn’t have to be gleaned from multiple emails or off-site spreadsheets and insecure file-sharing systems. Centralisation encourages focus and a faster exchange of relevant and up-to-date information, both essential elements of efficient deal-making.

Accessing information: Information needs to be available when required to maintain the momentum of a deal. A data room makes it easy to find relevant information. Multiple documents can be bulk-loaded simultaneously and organised by tools that name, categorise, order and index documents in a clear and logical way to ease navigation and searching. This is particularly important given the complexity and volume of information in an M&A deal. Documents can be updated and replaced when the due diligence process gets underway. Keyword search functionality saves time in finding information which serves to accelerate the deal and maintains concentration.

Using information: M&A transactions that are prepared properly for due diligence have a higher chance of success because more and better information is provided for deal-makers. A thoughtful and systematic approach to accessing and analysing information helps decision-makers set clear objectives, assess synergies and potential risks, and make more informed decisions about long-term prospects and return on investment (ROI). It also helps deal-makers prepare for negotiating terms and values. Initiating due diligence before starting an M&A deal can prevent wasting valuable time on deals that aren’t a good fit.  

Cultural fit is a crucial factor of deal success. Post-deal execution is often looked at properly after due diligence is completed, but astute deal-makers consider cultural compatibility and integration implications during, not after, due diligence. Access to good quality information allows deal-makers to assess and plan for integration, especially the time and cost it will take to achieve.

Collaboration: Good communication can encourage good relationships between parties that can positively influence the outcome of an M&A deal. Effective, transparent, and honest communication is essential for building trust, reducing misunderstandings, and speeding up the process. If requested information and answers to questions are slow in coming or are withheld, the relationship between parties can be damaged, apathy can set in and deal momentum slowed to termination point.

Data room collaboration tools simplify communication between participants and can keep them connected all the time. Q&A modules facilitate information sharing with the ability to ask questions and answer in private if required. The two-way flow of information maintains transparency during due diligence.

Valuable insights: Data room tools enable user activity to be monitored and analysed. Knowing which documents participants access, how much time they spend looking at them and their Q&A engagement is of particular interest. This valuable insight into participants’ level of interest in the deal provides guidance for managing the deal and relating with other parties.

Security: Nothing impedes M&A deal-making more than the fear of confidential information ending up in the wrong hands. It discourages full disclosure of information, reducing trust between participants and hindering decision-making. Data room technology solves the problem by reducing the risk of data breach, theft and unauthorised access and use of information.

Tools and processes such as encryption, authentication and access protocols control how information is stored, viewed and shared. Users can only see what they are authorised to access and are prevented from sharing, copying, editing, altering or printing documents without permission. Audit trails and activity tracking tools identify suspicious behaviour. Requiring participants to sign an NDA and watermarking documents are further deterrents to wrongful use of information. The secure data room environment enables participants to focus on the deal in full confidence without being distracted by concerns about the confidentiality of sensitive information.

Accelerating the deal:  The time it takes to complete a deal can greatly affect its success.  By enabling real-time access to information from remote locations, data rooms eliminate the wasted time of travelling to in-person meetings and sending documents between parties. Finding relevant information quickly and easily is another huge timesaving. Streamlining due diligence and collaboration processes helps deal-making by maintaining participants’ attention, productivity and momentum.

Post-deal management and future planning:  It is often necessary to exchange information, answer questions and resolve outstanding issues during the post-deal integration process. Data room expiry dates and access and usage protocols can be extended to accommodate this. The data room can be archived so that information and documents can be accessed in the future. Some companies keep their data room open indefinitely for their document management processes and for future fundraising and M&A deal-making.

Data rooms are designed to expedite M&A transactions efficiently regardless of their size, and using one instils confidence in deal participants. As with all technology, choosing a data room with the necessary functionality and using it effectively are essential to optimising the benefits.

 

If you would like to see how Perivan’s data room, Engage, can help you to manage your M&A activity, please get in touch with the Perivan team to arrange a demo and answer your questions.

 

 

 

 

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Decorative pattern