Who Controls a Virtual Data Room During M&A?
What if the seller wants to control the data room? Who should have default control over data rooms?
The Argument for Buy-Side Ownership
In answering this question, elements of modern vs traditional M&A come into play.
Ultimately, the buyer has leverage. It is their money that is going to make the deal transact and therefore the buyer has control. It is fair for them to claim their process and ensure it is driven in an efficient and effective way to produce the best results.
It is the buyer performing diligence and experiencing the increasing complexity of it. As they get to integration, it is extremely complex. It introduces the largest magnitude of change management the buy-side organization can go through, and they want to do their best to make that as smooth as possible.
For the buyers, they want to have a process that allows their internal team to not only do diligence but also prepare efficiently for all these diligence activities. Making this operate as smoothly as possible is critical to deal success.
That is typically not a problem with proprietary deals as you can have that alignment and move through it when bankers are less involved.
When they know they have control of the deal and that they are going to get paid when it’s closed, they do not care about the methods the buy team is employing internally.
Situations in Which Sellers Want Control
Buyers run into challenges early in the process when it is a bidding process and there is common competition.
In this case, the seller will want to set up and mandate their own data room. Most of the time, the clients we work with are downloading documents and putting them on an internal shared drive.
Sometimes, they have their own data room because they’re distributing it with third parties and want to have them on their internal shared drive.
Obviously, the buyers don’t want to track every activity in their seller’s data room. However, once they get that LOI signed, they have a chance to gain back control.
It differentiates from the traditional approach of doing everything spread out across platforms, separate and disparate.
When Should Buyers Gain Full Control of the Data Room?
Switching back to DealRoom, buyers need to let bankers know this is their process and the benefits will ultimately go to the buyers' teams.
To get the businesses through diligence faster, there needs to be that alignment. That’s done by moving over to the buy-side data room once the LOI is signed. The buyer can interact with the counterparty and any of the third-party teams alongside their internal teams.
The real magic is when diligence tracking and integration schedules coexist in the same box, iterating at the same time. It allows buyers to collect diligence information and respond to it while the integration plan develops alongside it.
It creates an opportunity for people doing the diligence to also be involved in integration planning.
In the end, the buyer is the party that integrates. Because integration should be planned alongside diligence to ensure the highest level of value retention and deal success, it only makes sense for the buy-side team to take over the data room.
The earlier the integration leads have access to diligence information as it comes in, the better they can prepare for everything post-close.
While the buyer definitely can give away a lot of control and rely on the sellers, it will simply create much more space for cultural misalignments and value loss.
Check out our due diligence playbooks.