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Chris Dobson
Chris Dobson,
SENIOR ASSOCIATE - SOLICITOR
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The use of data rooms in M&A transactions 
28 September 2018

A fundamental feature of any M&A transaction is the process of the seller providing detailed information relating to the target business to the buyer and its advisors in response to due diligence enquiries and for the purpose of making disclosures against warranties.

Until relatively recently this process was still largely being undertaken by sellers and their advisors compiling huge amounts of physical documentation, putting it into bundles and then sending these across to the offices of buyer’s advisers to be reviewed by hand. This was a burdensome task for sellers and could take a significant amount of time and resources to put together. Equally, from a buy-side perspective, locating specific information from the large number of physical folders often supplied was not an instant process and there were unavoidable limits placed on the speed of the review and the numbers of advisors who could be involved in the process due to the confines of turning the pages of physical documents.

The introduction of virtual data rooms allowing vast amounts of documentation to be uploaded instantly into a secure, on-line environment, accessible to multiple viewers at any one time and providing sophisticated searchable functionality has therefore, been a positive technological development in the M&A process and has become the standard approach to managing this element of any deal.

The following points should be considered by all parties at the outset of any transaction where the intention is to utilise a data room:

  • Security Compliance

    All parties involved in the transaction should ensure that the chosen data room provider complies with GDPR requirements for data processors. In particular, clarification of the geographical location of the servers which could store any personal information uploaded into the data room should be obtained to ensure that it has been determined by the European Commission as being a safe place to store such information.  
     
  • Users and access to the data room

    The set of advisors hosting the data room will need to ensure that suitable terms of use dealing in particular, with the confidential nature of the information being uploaded, are in place and that any user of the data room confirms and accepts the terms before being given access to the materials.

    Depending on the profile of the parties to the deal, the level of access to the data room given to certain individuals may need to be restricted. For example, UK listed organisations will need to be compliant with their obligations to the Competition & Markets Authority and as such, established procedures for the control of the flow of competitively sensitive information being uploaded into the data room should be implemented as soon as possible in the process.
     
  • Structure

    The parties should agree on an indexing structure to be adopted for documents being uploaded to ensure that users can readily identify and access the materials being referred to in the replies to due diligence enquiries and/or any specific disclosures being made. Generally, setting up the folders in the data room to mirror the sections and numbering used in the buyer’s initial due diligence questionnaire works well to achieve this aim.
     
  • Quality of the uploaded materials

    As was the case when physical materials were provided to buyers, sellers and their advisors will still need to ensure that the quality of the documentation being uploaded is fit for purpose – providing copies of unsigned or incomplete agreements for example,  will frustrate and delay the buyer’s ability to complete its due diligence enquiries and/or disqualify a document from being deemed disclosed. 

 
The development of virtual data rooms has undeniably been a huge benefit to the M&A deal process in terms of the speed at which information can be easily compiled, shared and reviewed. The results of which can be seen in reduced deal timetables and the potential of associated savings of professional fees for clients. However, the technology on its own can only do so much and in order to truly maximise its potential to deliver these kinds of gains, the quality of human input still has a fundamental impact on the platform’s ability to play an integral part in driving transactions across the line.  
   
If you would like advice on the use of data rooms in M&A transactions, please contact Chris Dobson [email protected] in the Corporate Team. 

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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