The Competitive World of M&A
Perceptions around data rooms are changing. Dealmakers no longer see them as a ‘buy-by-the-yard’ commodity and are increasingly seeking out M&A platforms that offer a wide range of tools and features to assist the deal making process and boost success rates.
When an absolute beginner rolls up at the golf course, dressed in plus fours and plaid cap, with a caddy and a full set of clubs, people tend to remark, ‘All the gear – no idea.’ It’s generally accepted that beginners use cheap, even substandard equipment, while athletes at elite levels seek out the highest-quality kit, hoping to hone their competitive edge by even the slimmest margin.
At professional levels, it’s big business. Millions of dollars are sunk into designing the perfect running shoe or football boot. Team uniforms are tailored to fit individual athletes, to remove any unwanted weight or friction. Refinements that novices might never notice end up making the difference between gold, and no medal at all.
If this is true in competitive sport, then how about the equally competitive world of M&A? The same principle applies: The better the performer, the greater the need for the very best equipment to enable that quality to shine. At the highest level, success is about micro-gains – so that even one small advantage can give you the edge.
However, the very best data rooms available offer far more than just a small advantage.
The Many Potential Benefits of an Advanced Data Room
Just as not all running shoes are the same, there’s a wide variety of data rooms – from simple gym sneakers to Usain Bolt’s Pumas. A high-end data room can boost you in a whole range of areas, such as:
- Deal marketing – finding the best potential buyers
- Deal preparation – being ready to start due diligence as soon as the mandate lands
- Faster setup – loading all the data room content and prepping it for sharing
- Due diligence management – steering and monitoring the entire process
- Smoother collaboration – tools that facilitate fast and secure coworking
- Analyzing progress – knowing the deal’s exact status at any given moment
- Greater security – you want safeguards that go beyond mere software
- Shorter deal times – to reduce costs while increasing success rates
There are further potential advantages that go beyond the scope of a single deal – but for now, let’s consider each of those benefits in turn.
Deal Marketing
Though technically a pre-data room activity, marketing a deal comes with similar security concerns. Any leakage of confidential information can torpedo a deal before it leaves the harbor, so dealmakers are best served by using a secure platform from the very beginning. They can prepare teasers and confidential information memorandums (CIMs) via collaboration in one protected space, removing the need for back-and-forth by unsecured communications. Even better, a built-in marketing engine such as Datasite Outreach™ can individually watermark every marketing document and dispatch them in bulk to multiple potential bidders – saving a huge amount of time and getting to market faster, with minimal risk of a confidentiality breach.
Deal Preparation
‘Fail to prepare, prepare to fail’ is a saying every athlete should know – and so too should every dealmaker. Long before you make a data room live, it’s good practice to have most if not all the materials already in place and properly structured. ‘Keeping your bags packed’ in case the right deal appears tomorrow is a great way to steal a march on the competition – assuming your provider offers it. Datasite makes this possible through the Datasite Prepare™ app, which is essentially a pre-diligence version of its data room. Deals can be set up far in advance, ready to roll at a moment’s notice.
Faster Setup
Setting up a data room can be like moving house – it’s one thing to move all the contents into the new space, but getting everything into its proper place is a whole different ball game. For data room content, setting up folder structures manually can be a mighty undertaking, while categorizing and locating every file represents many hours of work. Or (as with moving house) you can get someone else to do the heavy lifting.
A data room as advanced as Datasite Diligence™ can build your folder structure directly from your task checklist (see below) and then categorize and file every document using AI. Files can find their perfect homes via simple drag-and-drop. You can also email content straight into your sandbox and file it later.
Setup doesn’t end there – because now you have to redact any sensitive data. This data may take many forms, from personally identifiable information (PII) to deal data that may need to be concealed initially but revealed at a later stage. Again, as a manual task this can be overwhelming. But a smart redaction tool (such as the one in Datasite Diligence) can identify multiple types of sensitive data and selectively redact (or unredact) this information across the entire data room – with just a few clicks.
Overall setup time can thus be reduced to days or hours, when it might have taken weeks.
Due Diligence Management
When you boil it down, due diligence is just a large to-do list. But it involves so many different tasks, and responsibilities for those tasks, that keeping track of progress is a challenge in itself. Traditionally, this is done via spreadsheets, which are sent back and forth via email. But this method inevitably runs into version control issues, besides being an unwieldy way to work. It also creates an unwanted security weakness.
Datasite Diligence solves this problem by managing all tasks centrally, via the trackers tool. Now the whole deal team works from one central checklist, one that updates regularly and automatically as tasks are executed. Better still, the data room’s index can be built directly from the checklist, and remain linked to it, so that the structures match exactly, and every task links to its related documents. As a result, everyone knows exactly what needs doing and who needs to do it; and advisers the state of progress at all times.
Smoother Collaboration
The central management of due diligence is just one way that a data room can improve and speed up collaboration. There are others. Handling the process of answering buyer questions (or getting answers, if on the buy-side) can cause just as much friction and delay. Again, it’s best to bring this activity inside the data room, to make it easy to see which questions are outstanding, and who is responsible for answering them. Centralize Q&A is built into both Datasite Diligence (for the sell-side) and Datasite Acquire™ (for the buy-side).
Staying with the buy-side, buyers need to be able to collate all their due diligence findings, in order to easily assess risks, obstacles, and potential dealbreakers. Datasite Acquire enables this by including a single space and format for all findings. Because nothing leaves the data room, nothing gets missed.
Analyzing Progress
The original, physical data rooms were often windowless, to prevent any possible security breach. But some modern digital data rooms feel windowless too – in that it’s hard to see where you are, or where you’re going. A good data room shouldn’t make you feel as if you are driving at night with no lights. To maintain momentum and hit deadlines, it’s vital to have ongoing analytics to give you a clear view of the progress made, as well as of the road ahead. Datasite Diligence comes equipped with customizable analytics dashboards, so you can see exactly what you need to – and in exactly the format that you prefer.
Greater Security
Security is the number one reason for using a data room in the first place. However, true security is about far more than just software. The strongest encryption may be rendered vulnerable if the working processes around the data room are flawed, or if human error is allowed to creep in. This is why it’s important to have security embedded at every level: platform, processes, and people. For example, at Datasite the rigorous security standards built into the software are just the beginning.
Datasite also maintains strict data protection policies combined with regular stress-testing and training, to mitigate against all potential areas of vulnerability. What’s more, the versatile array of tools (such as powerful multi-level redaction) makes it far easier to maintain high levels of security.
Cumulative Benefits
The combined advantages of an advanced data room are greater than their sum. Together, they can significantly reduce workload and thus shorten deal times. This delivers a double benefit: lower overall costs, and greater chance of success. A Datasite survey has shown that every extra week of due diligence increases the chance of deal failure by 50%, while increasing costs by around $100k. In other words, today’s M&A tools are not mere labor-savers; they are potential deal-savers.
Contact the Datasite team today to receive a live, personalized demo or request your quote.
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