It is getting difficult to remember what the physical data rooms in an M&A deal were like ‘in the old days.’ Does anyone really miss those often windowless, oxygen-deprived rooms stocked to the ceiling with boxes or shelves of binders packed with information that became outdated almost before the room opened for visitors? A virtual data room is a website onto which confidential documents are loaded and to which access is granted only with permission. Today, there are more than a few providers offering virtual data room services with powerful software, but it is important to know what is available and at what cost. At the outset of any transaction, among other considerations, is whether the seller wants to ‘go virtual’ with its disclosure to prospective buyers.
Both sellers and buyers should be aware of a number of things before setting up a virtual data room or entering one as a reviewer of posted documents. For the party setting up a virtual data room, devoting time, up-front, and sensibly organizing materials pays dividends later by allowing for varied uses of the room by different types of interested parties.
Given the state of the technology, it is not surprising that many think a virtual data room can be set up faster than a paper one, but the opposite is often true. Documents that are not in electronic form have to collected, scanned and coded to match an index. Consideration has to be given to which documents will be permissioned for access at which stage of the transaction and the type of access a viewer will be given, namely, ‘view only,’ ‘print access’ or an ability to save and manipulate documents. From our experience, it is the lawyers, rather than the clients or their investment advisers, who manage these rooms, and accordingly, more time of associates and students is involved in the early stages than might have been the case with a paper data room.
With the initial investment, however, there are some real advantages to a seller with a virtual data room:
- a potentially unlimited number of users (who cannot know who else may be in the room) can be granted access around the clock, enabling a seller to run a faster and more efficient auction;
- buyer teams no longer have to travel to data room locations and can assign any number of specialists to review relevant documents from anywhere they have a computer terminal;
- access to documents can be granted and changed in real-time, almost on a document-by-document basis, letting a seller expand the access to selected parties or delete a party’s access very quickly;
- if the seller’s representations in the purchase agreement are to be qualified by the disclosure it has given, a ‘snapshot’ of the room as of a given date can be captured, downloaded to a DVD and maintained for evidentiary purposes; and
- documents can be added and disclosure kept up-to-date more easily, allowing the parties after completion of the transaction to use the room as an ongoing warehouse for important documents, and permitting the seller to get more value out of its initial investment of time and money.
There is an important point that buyers should be aware of before entering a virtual data room: the data room managers can, at any time, determine who has been accessing the room and what documents they may have been looking at or not looking at, perhaps thereby giving the seller a strategic advantage in identifying what might be of concern to the buyer or its value considerations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
