M&A Deals with Virtual Data Room

M&A is one of the most frequently held processes in the business world. And lately, there is even more of such deals due to the global crisis caused by the Covid-19 pandemic. So a lot of business owners go through the M&A for the first time. 

This quick guide will familiarize you with this process and tell you about the steps you’ll need to go through. Also, you’ll find out what are data rooms and how they can simplify the procedure of M&A for both sides.

What is Mergers and Acquisitions?

M&A Deals

The term M&A unites business processes related to the consolidation of firms or their assets. It includes mergers, acquisitions, tender offers, consolidations, and other procedures through which businesses unite their forces somehow. 

Although this term kind of puts an equality sign between all these processes, a merger and an acquisition differ greatly. During the merger, two businesses unite to create a stronger and more efficient unit. While an acquisition means that one firm takes over another for some reason — then the obtained business either stops being a separate business or becomes a subsidiary of a firm that took over it.

But since the processes are similar despite that they’re leading to different outcomes, they’re united under one term to generalize all the procedures.

Reasons for Mergers and Acquisitions

The main goal of M&A is to enhance the positions of a business. Therefore, the reasons for a firm to go through this procedure can be:

  • The union of finances to lower the costs of capital;
  • To diversify the products or services;
  • Risks diversification;
  • Taxes;
  • To get the larger market share;
  • To accelerate growth.

Depending on the goals and reasons for M&A, the sell-side picks one of four types of auctions:

  • Broad auction;
  • Limited auction;
  • Targeted auction;
  • Exclusive negotiation.

During the broad auction, an intermediary or an investment banker approaches a lot of buyers. It’s the best choice for middle-market businesses that want to obtain liquidity since it offers better exposure. Thus, it offers the highest valuation and the greatest exposure to strategic and financial buyers. However, it’s the least confidential and the slowest kind of auction. 

A limited auction also allows sellers to reach a large group of potential buyers offering greater exposure to financial buyers while still reaching strategic ones, too. A limited auction offers mid-sized valuation, and medium confidentiality and speed. It’s a golden middle.

During a targeted auction, only the chosen buyers can participate. The focus is on strategic ones — financial buyers are often excluded. This approach is the most confidential and quickest. It offers the lowest valuation and gives access to the smallest market size.

An exclusive negotiation means that only one or two buyers are participating. Usually, the buyers are strategic, and they offer a very high price. However, it might be hard for a seller to evaluate offers as there is nothing to compare them to. Exclusive negotiations are extremely confidential and fast.

Steps to get ready for M&A

Obviously, a seller and a buyer will have to go through different processes. 

The buying side

  • Create an acquisition strategy — a buyer needs to understand why it wants to go through an M&A process.
  • Understand what to search for — depending on the goals the search criteria are different.
  • Look for targets — with the specific criteria in mind, a buyer should determine which companies would be good targets.
  • Obtain information — as targets are clear, a buyer needs to get more data from them to evaluate them and understand if it really fits the goals.
  • Negotiate — at this stage, a buyer needs to place an offer for a sell side and then negotiate suitable terms.
  • Due diligence — as all terms are clear, the buying side should thoroughly examine a firm it’s about to acquire.
  • Make a deal — it’s time to sign a contract if a due diligence process went smoothly.
  • Create a financing plan for acquisition.
  • Close the deal — now the process of merger begins.

The sell-side

  • Define the strategy — understand why do you want to sell the company, to whom, and for how much.
  • Choose the type of auction — pick the one that fits your current situation and goals better.
  • Organize the documents — prepare all the reports and supporting documents that would interest a buying side in obtaining your firm.
  • Lay out projections — what are your forecasts for the income and results after the acquisition?
  • Produce marketing materials that would advertise your firm to buyers.
  • Prepare a non-disclosure agreement.
  • Contact buyers — offer them your marketing materials, NDAs, and projections.
  • Receive initial bids — determine which ones fit your goals.
  • Communicate with potential buyers and answer questions that arise.
  • Get ready for due diligence — set up a data room and invite potential buyers.
  • Receive final bids.
  • Draft the future contract.
  • Enter an exclusive agreement with the chosen bidder.
  • Let a buying side perform due diligence.
  • Offer final conditions of the agreement.
  • Sign the contract.

Data Rooms for M&A

Once the contract is signed

When two sides agreed on all the terms of the deal and signed a contract, it’s time to merge the companies. It’s a quite effort-consuming process that requires both sides to create an efficient structure of a newly formed company.

Virtual data rooms are a great aid on each step of the M&A process. They allow the sell-side to gather all the required documents in one place and organize them to present the company in the best way possible. Also, data rooms will keep sensitive corporate data perfectly safe yet accessible to authorized users. And since the sell-side can control who can view and work with files, it’s easy to gradually give sellers access to more detailed information. Moreover, since data rooms can be accessed from any device and location, it won’t matter that the seller and buyer are located across the globe.

To ease the search for that perfect data room for you, we’ve reviewed and picked the best providers.