Conducting due diligence no longer means bidders must travel to a physical room and work around the clock, taking turns reviewing piles of complex paper documents. The concept of the VDR – first developed in 2001 – is simple. Parties involved in a transaction are invited to the VDR website by the host, who grants them personalised access rights. These participants are free to peruse their list of documents, conduct searches, print and save permitted documents, all based on their levels of access. All parties can work simultaneously, at their own pace, and at any time of the day or night, from anywhere in the world. Everyone benefits. Sellers are able to attract a broader range of buyers, and receive valuable insight into buyers’ interest in their deal. VDR streamlines the entire due diligence process, creating a much quicker path to liquidity.
Although the worldwide VDR market is relatively embryonic, the demand is increasing at an impressive rate. It is estimated that virtual data room technology was in use for almost 70 percent of all North America-based M&A deals in 2007, and the trend is spreading internationally, with the use of a VDR becoming more popular throughout Europe and Asia.
This growth can be attributed to five key factors:
1) Globalisation of M&A: Sellers naturally want to cast a wider net. A virtual data room enables them to reach more potential buyers than ever before, extending the invitation to buy across borders and language barriers.
2) Drive to efficiency: Companies (and shareholders) want their advisers to work efficiently and complete the process quickly. Virtual data rooms often reduce deal duration by 50 percent or more, saving considerable time and money. Bidders also enjoy cost efficiencies, with immediate access to business-critical information and reduced travel costs.
3) Compliance demands: With the current atmosphere in corporate governance driving buyers to ever deeper due diligence, the virtual data room provides opportunities to capture and report the details of due diligence review at unprecedented levels, providing peace of mind to buyer and seller alike.
4) Pressure to put capital in play: A virtual data room opens doors to a wider range of bidders and accelerates transaction speed. The end result is that bidder traffic is increased, more deals can be done in a shorter time frame and valuable capital is engaged quickly.
5) Expanding range of uses: Demand for other uses of virtual data room technology is increasing as companies and their intermediaries deploy a VDR for more types of transactions. Such uses include, but are not limited to, the facilitation of post-merger integration, pre-IPO collaborative workspace, portfolio company information management at private equity firms, hedge fund management and corporate data repository.
How do you determine which company is the best virtual data room partner?
A first step is to identify best practices and then use them as performance yardsticks. Here are nine important considerations for making a VDR purchasing decision:
1) Ensure the solution provider has an established track record of delivering quality service. It is critically important that buyers of virtual data room service do their own due diligence to ensure that a provider is customer-focused, has a proven technology and a track record that is strong and easily referenced.
2) The solution should integrate leading technology, support industry standards and work with globally accepted data formats. Technology should alleviate headaches – not add to them. The ideal solution will embrace ease of use and open standards while supporting legacy applications and databases. The deal owner and user experience should be easily customised rather than a one-size-fits-all process or off-the-shelf software. The technology should work with all globally accepted data formats for document sharing.
3) Choose a solution provider with deep domain and project management expertise. Confidentiality is paramount. Choose a company with a strong track record of success with the management and distribution of confidential information. It is important that a VDR provider understands the transactional business environment. Insist that a project management and service team has the specific expertise needed to communicate with any party to the deal professionally and competently. Top-tier solution providers offer comprehensive and ongoing support with consistent points of contact to maintain continuity.
4) Production facilities should be available around the globe for accelerated document capture. When time is of the essence, immediate document collection and delivery to the virtual data room may be a requirement. The best solution providers have document scanning facilities located in cities around the globe. Their teams specialise in making sure that a client’s unique document needs are met quickly and efficiently.
5) Ensure that changes can be made and questions can be addressed immediately, even in multiple languages. In the midst of a deal, flexibility is key. Sometimes requirements and needs can change in an instant. The ideal virtual data room should be designed to facilitate instant updates by any empowered user. Best-in-class solution providers employ client-facing resources with the skills and experience to counsel clients in effective ways to manage the mountain of data that a transaction requires.
6) The solution must engage the highest security. In a virtual data room environment, security is of the utmost importance. A potential partner’s technical capabilities – as well as their experience with sensitive corporate information – should be important considerations.
The following capabilities should be in place:
• Uncompromising and reliable security measures covering the application, staff and infrastructure;
• SAS 70 Type II certified hosting environments
• Global, multi-location data hosting with zero-downtime network guarantee;
• High-performance data back-up carried out many times a day;
• Database replication stored at dispersed geographic locations;
• A core competency in handling sensitive financial and business information.
7) Look for rapid data room deployment. Among virtual data room solution providers, speed is a key differentiator. Top-tier virtual data room solutions provide the tools to create indexes in minutes, not days, and enable document review in real-time as documents are captured, processed and posted.
8) Inquire about audit trail and archive capabilities. Audit capabilities are among the most important elements of any virtual data room, and should be examined carefully. The site host should be able to readily monitor user activity to gather intelligence related to buyer interest. At the close of the deal, comprehensive auditing capabilities can provide important proof of disclosure. User activity reports should be captured and delivered at the end of the project on storage media, providing an archived audit trail.
9) Remember: The solution is a rich service, not a software application. No two M&A transactions are the same. Sellers need a flexible system that can be easily customised, in conjunction with an expert project management team. It is important that the solution is robust and clients can choose to manage their own documents or rely on a professional project management team.
At the forefront of global VDR expansion, and readily meeting all these criteria, is Bowne & Co., the undisputed world market leader in shareholder communications, and provider of top-level marketing and business communications services.
Dealmakers rely on Bowne to handle critical transactional communications with speed and accuracy, and compliance professionals turn to Bowne to prepare and file regulatory and shareholder communications online and in print.
Marketers look to Bowne to create and distribute customised, one-to-one communications on-demand. With 3,200 employees in 60 offices around the globe, Bowne has met the ever-changing demands of its clients for more than 230 years.
So it is perhaps fitting that Bowne Virtual Dataroom is the choice of dealmakers around the world to facilitate due diligence review for financial transactions.
Major companies which have already experienced the benefits of the Bowne Virtual Dataroom during the buyout boom of the past couple of years include BCE, Inc. (Bell Canada Enterprises) and IPC Systems, Inc. (for details, see case study panels).
Building on its history of delivering results through outstanding service, Bowne engages BMC Group Inc. as the exclusive provider of its virtual data room technology and services.
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