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The Evolution of the Q&A Feature for M&A Due Diligence 

The Q&A Feature for M&A Due Diligence

Overview
  • What is the Q&A feature?
  • How is the Q&A feature used during the due diligence process?
  • Benefits and Concerns of the Q&A feature
  • What is a modern approach for conducting due diligence?
  • Why is a modern approach to conducting due diligence more useful?

What is the Q&A feature?

VDR Q&A feature

In virtual data rooms, the Q&A feature creates a way for users to ask questions regarding the folders and documents they have been given access to, without leaving the platform. Whenever a question is asked, an email alert is sent out, and the answer can be answered via email or through the Q&A tab.

How is the Q&A feature used during the due diligence process?

The Q&A tab typically consists of published, open, and closed questions. Published questions can be used for repeated questions or FAQs. Overall, the Q&A feature has been adopted by many traditional virtual data room providers as a way to encourage in-platform collaboration.

Benefits and Concerns of the Q&A feature

Not every m&a data room's Q&A feature is the same, each one varies slightly. With some platforms, only users that have been assigned specific roles can answer questions. Others require the question to be reviewed before it is made visible to others.

For example, a well-known traditional VDR provider doesn't allow administrators to ask any questions. The administrators are part of the one and only answer team, and only buyers can ask the questions. Buyers can link a file to a question but can not ask a question from an open file.

During the m&a due diligence process, buyers and investment banks can go back and forth asking questions and receiving answers without having to leave the data room. For example, someone may ask “Where are the financials from 2015?” and another user can point them in the correct direction. And while it provides some assistance, it still doesn’t streamline the diligence process. In the example above, the user didn’t have an easy way to find the 2015 financials and has to wait for the appropriate person to see the question. The user would then be emailed the file, sent the Excel tracker to see the status of the request (maybe the document wasn’t even collected yet), or given the folder name in the data room.

due diligence Q&A feature

That’s why at DealRoom, we took a slightly different approach with our Q&A feature. We wanted users to still be able to ask questions, and other users to see FAQs, but we also wanted to eliminate the use of Excel from the diligence and virtual data room process. This is how we came up with our “Requests” tab.

Instead of relying on Excel trackers, all buyer document requests and communication regarding the due diligence process can go through the data room. Everything is updated in real time, so users no longer need to worry about version control. DealRoom supports all file types, so folder structure uploading and sharing is easier, or safer. Teams can upload pre-made templates, and the room will automatically populate with the diligence requests. From there, users can request files, documents, and tasks from specific users. Within each request, users can add attachments, set due dates, write comments, ask questions, and more. They can mark the status of the request. 

Each buyer group can have their own separate request lists. In the image below, you can see that there is a group for each of the buyers and a separate group for due diligence. Apple’s requests list consists of categories such as finance and accounting, legal and insurance, contracts, organization, IT, and more. Anytime the bank has a question for Apple regarding contracts, they can create a new request in that list. This allows for everyone involved in the deal process to be collaborative, find the documents and files they need, and they never have to leave the platform.

virtual data room Q&A feature

Modern approach to due diligence Q&A

Benefits

1. Eliminates Excel trackers

2. Captures Analytics

3. Real Time Updates

4. Team Member Delegation

5. Automates Tasks

6. Tracks Due Dates 

7. Securely Stores All Documents and File Types (Read also about virtual data room security)

8. Streamlines Processes

Why it is more useful?

The idea of “requests” is very different from the traditional way of completing due diligence, however, it provides many benefits. It helps eliminate the needs for Excel trackers, back and forth emails, and frequent phone calls and meetings from the diligence process. It also helps teams capture insightful analytics and prevent duplicate work. When teams use the traditional method of completing due diligence, they usually do a bulk download. All information is looked at offline and banks have no idea who is looking at what.

In contrast, when everything goes through the platform, banks can paint a clear picture using the captured analytics. They know exactly what documents have been viewed, by who, and for how long.

We know it can be hard to adopt new processes and methodologies. It’s not easy to walk away from a software or technology you have been using for years or sometimes even decades. However, trying something new can provide enormous benefits for not just your team, but your client too. 

Learn more about DealRoom’s “Due Diligence Requests”.

Read also:

How to Pick a Virtual Data Room in 2019

Advanced VDR Features that Data Rooms Should Have in 2019

5 Important Virtual Data Room Features

What Causes Deal Fever? What Raises the Risk?

There are several symptoms that can lead to the disease of deal fever. 

One such symptom of deal fever is getting carried away in the heat of the deal. There is a lot of time and effort spent just exploring a potential deal, let along the negotiations involved. Sometimes people spend so much time and effort on exploring and negotiating the deal that they feel is must get done at all costs, while failing to take a birds-eye view in determining if the deal is really the best thing for the company.

Another symptom indicating the presence of deal fever and one that raises the risk of catching it is when certain executives become more excited about the deal and emotionally involved in the outcome than other members of the group. This can lead to inflating the deal’s potential strengths instead of also focusing on potential pitfalls. In a competitive situation, sometimes certain people want to do the deal much more than others for a variety of reasons. 

Many M&A teams also use M&A software to help them source new deals. Just because a software is telling you a deal is a good idea, that doesn't mean you don't have to do the proper research.

How to Prevent Deal Fever

Great news! There are a number of proven ways to prevent deal fever and keep your company disease-free. Here are some tips to stay deal fever-free:

  • Perform More Research Than You Need To. You can never perform too much research on a potential deal, so we recommend doing even more than you think you need to.  
  • Seek The Opinion Of Experienced Deal Makers. Get another opinion from someone you trust that has embarked on similar deals. What do they think of the deal? Seeking another opinion that can evaluate your potential deal without the emotional involvement will help you ensure the deal is truly one you want to pursue!
  • Know All Of The Potential Risks. Thoroughly evaluating the deal’s potential risks, and involving your team in the process, will help you avoid deal fever. Don’t lose sight of your basic financial calculations! Involving others in the process is essential, as you want to make sure nothing is overlooked and you can remain deal fever-free. 

Resist deal fever by not overlooking the negatives that you may not want to see! If you have been the primary person working on the deal, make sure you involve others so they can help assure that you are seeing everything clearly. There should never be one person working on deal flow tracking. Likewise, don’t let personal pressures to get the deal done get in the way of looking at everything objectively. Sometimes, not doing the deal may be in the best interests of the company.

How to Tell When You Have Deal Fever

Do you have a high degree of risk tolerance? Do you have a burning desire to get the deal done, yet something just doesn’t feel right about it but you’re not sure what? If so, you may be catching a slight bout of deal fever.

Having the above feelings isn’t just exclusive to individuals, either. Many companies surveyed believe that their M&A function of getting the deal done is more important than what follows. If you’re in the M&A department, and you’re not performing M&A’s, something must be wrong, right? No, not necessarily. Inherently good deals are difficult to come by and you may have to pass on many of them before you find the right fit.

If deals contain personal agendas or emotions, or your company provides more incentives and encouragement to do the deals rather than not, than these are signs that your company may have deal fever. Recognize the signs so you can avoid deal fever and ensure you are making deals that have the highest chances of future success for your company.

Deal Fever

Treatment, Care & Medications For Deal Fever

Below are some treatment, care and medications for this contagious disease known as deal fever:

  • Treatment Option 1. Ensure your deal team is incentivized for long term success, and not just for completion of the deal.
  • Treatment Option 2. Have objective, experienced observers review the deal specs, including all of the potential negatives of doing the deal.  This way you can help ensure you’re not overlooking potential pitfalls.
  • Treatment Option 3. Let post-close executives have direct input into whether or not the deal goes through
  • Medications For Deal Fever. Create clear action steps that are to be taken when considering all potential deals. Create a set of red flags, or things to be looked at more closely when they occur. Finally, a healthy dose of objective observation by people not directly involved in the process will both help prevent and cure this debilitating disease!

A very important aspect in our guide on deal fever is to cultivate a business culture in which you have both risk tolerant and risk averse individuals on the team, with both groups having equal say. When both groups sign off on a potential deal, and it is also reviewed by an objective observer, you know you might have a winner!

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Don’t Underestimate the Power of Diet, Exercise & Rest

One of the most important ways to prevent deal fever that is often overlooked is to ensure you have a good diet, and are getting enough exercise and rest. Doing so will keep your mind and body in tip top shape, and will help alleviate some of the pressures incurred from pursuing and evaluating a potential deal. 

M&A deals are complex transactions that often go at a very fast pace and can also be emotionally charged, so ensuring you’re eating well, exercising and getting enough rest can help counteract the pressures of working on the deal.

The Takeaway

Many M&A management can sometimes lack a truly accountable leader to oversee the process. Having a great leader, coupled with the goal of long term success instead of short term, are the highlights of the best things to do to not get infected with this crippling disease. Set the criteria for success and focus on that more than focusing on doing the deal just to get it over with. Make sure your team is incentivized on long term goals and are not acting out of the fear of “what if we don’t get this deal done.”

If you and your team are currently managing M&A transactions, check out DealRoom's M&A virtual data room and project management software. DealRoom's platform also includes pipeline and integration management, which helps teams organize deals for their entire lifecycle.

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