Betting the House – Virtual Deal Rooms

Managing the details of mergers and acquisitions (M&A) pose many logistical and technological issues that require the insight of the CIO. Due diligence demands interested investors be able to examine all pertinent documents before they decide whether to acquire or merge with a company.

Traditionally, these interested parties would go to a physical space to review the data in a library setting. Hosting multiple buyers on-site at the same time can be chaotic, while scheduling each prospective investor independently can drag out the transaction process by weeks or months.

Today, businesses have a better choice: the virtual deal room (VDR). A VDR is the electronic equivalent of the physical “deal room” that financial institutions, law firms and corporations traditionally have used to host potential buyers and sellers of businesses. The VDR is helping revolutionize due diligence by streamlining the communication process between buyers and sellers. It provides a secure internet-based repository for documents to be reviewed by authorized individuals interested in the transaction.

While the VDR offers businesses an efficient means of selling assets, the successful use of a VDR hinges on the CIO becoming an integral part of the “deal” team to ensure proper design, implementation and compliance with corporate policies. The CIO’s technological expertise also can prove instrumental to help ensure that the selected solution is cost-efficient, secure and accessible for users at all levels.

A host of benefits

VDRs are a fixture in sophisticated business transactions today. With the globalization of deals and the need to access the data quickly to decide whether or not to pursue a deal, a VDR provides that tool to make those decisions in a cost-efficient manner. A study by the Association for Corporate Growth showed that 65 percent of corporate business deals in 2006 involved a virtual deal room, up from 35 percent in 2004.

Fueling the growth of advanced VDRs are many benefits for both buyers and sellers:

Access and control – Users can access the data at anytime from anywhere in the world. Documents are less likely to become lost and cannot be printed by the user unless previous arrangements are made by the seller. Also, all documents are housed in one central location for better management and control.

Buyer insight – Potential buyers’ searches can be tracked to detect buying patterns. Sellers gain a deeper understanding of what documents most interest buyers and how diligently they are pursuing the process.

Security – Encryption, passwords and other safeguarding techniques help ensure no unauthorized access is permitted in the VDR. Documents can be set to “read only,” thus preventing anyone from printing or saving the files. Also, by moving due diligence off-site, companies reduce the chance of an inadvertent disclosure to an employee or vendor.

Ease of use – People can perform simple “Google-like” searches instead of combing complex databases. The best VDRs also typically house metadata, document text, native files, and TIFF or PDF images. This allows the user to search and view the data and documents they consider important.

Cost effectiveness – The VDR eliminates the need for a team of lawyers to travel to a site to review documents. Also, buyers have more effective tools at their disposal to evaluate the worth of an asset accurately.

Multi-language capability – Advanced VDRs offer full foreign language support. With increasingly global trade and deals involving foreign corporations, being able to search and process information in languages ranging from Chinese to Arabic to Russian is a must.

Role of the CIO

To ensure effective operation of the VDR, it is crucial that the CIO play an active role in its design, creation and management. Numerous examples exist of counsel or business units selecting a VDR solution without consulting the CIO, and this typically affects the success of its implementation. Some key considerations include in your thinking …

  • Where the site is hosted?

  • Will it be hosted by the corporation or outside counsel?

  • Will it be hosted by a supplier?

  • How data is collected and made available for the site?

  • The type of access and security required for the VDR?

  • Who will project-manage the VDR?

  • Is there any litigation surrounding the sale of the asset?

The CIO must be part of the “deal” team to ensure proper compliance with corporate policies, but more importantly, to use their expertise in technology to ensure that the solution that is selected is cost efficient, secure and accessible for all levels of users.

With the proliferation of the Internet and other electronic communications, companies are now able to significantly expand their reach in seeking buyers, investors and business partners. With the flexibility, cost-efficiency and security of VDRs, companies can both display and protect confidential information, helping to ensure that the right information reaches the right people at the right time.

David Cochran is the executive vice president and COO of Planet Data, a leading international information management and ediscovery company. He has been involved in all aspects of litigation support and document management since 1985. Planet Data was founded in 2001 and is headquartered in Elmsford, NY, with offices in Boston, Charlotte, Cleveland, Denver, Paterson NJ, Pittsburgh, DC Metro region, and The Netherlands.