Your virtual data room is all set and you are ready to enter the primary stage of due diligence in your merger or acquisition transactions. Actions in the pre-due-diligence phase depend upon whether the process is seller-driven or buyer-driven.
In the second part of our M&A process, we will continue from the last point in the planning stage discussed at the end of the previous part of our M&A series.
The planning stage is that part of M&A where the sequence and timing of the release of seller identified documentation to the buyer are decided and then released. The interested parties get permission to access these documents. Now, the vendor’s management group gives them the entry to the data room to kick start the process.
During this period, the seller can easily get an idea of the interest of the parties by using the VDRs inbuilt activity log tool. Through this tool, the seller can check who is looking at what document to obtain their level of interest.
It is well understood that an M&A deal comprises lots of communication between the seller and the buyer. The traditional method of calling and emailing is still in work but now the deals can be channeled more securely through the virtual data rooms. The benefits of using the VDR for corporate communication include:
A Q&A feature that enables parties to ask questions
Automatic daily or weekly updates
Alerts generated by the system
Investment bankers are typically involved in the coordination of Deal Communication. They provide comprehensive answers according to the interest of the prospective buyers.
The selection of the bidders and procedure to review securely the Letter of Intents (LOI) become feasible within the data rooms when they are submitted during due diligence. Based on the progress achieved in this stage, the deal manager releases the additional documents to the bidder who has shown an appropriate level of interest in the deal.
Few mergers and acquisitions are completed without the requirement to plan and coordinate several meetings. Before submitting a bid, many potential buyers prefer to do site visits to see the seller’s operation for themselves. They may require access to documents stored in data rooms while on-site to verify the accuracy of asset data and operational reports.
The buyer and seller can begin negotiating the sale-purchase agreement (SPA) if the due diligence procedure appears to be proceeding well and no legal difficulties occur to cause the process to be delayed. This describes every facet of the transaction, including:
Date of ownership
Transfer of assets
Employee impact and compensation
The SPA draft is distributed to all parties so that they can analyze the final bids and see how many buyers are still in the process.
If the process is driven by the buyer, then there are only two parties involved in the deal: the buyer & the seller.
The buyer begins due diligence by reviewing the seller's paperwork, which is usually the data he sought during the pre-due diligence step. This allows the buyer to figure out what information is required to submit a Letter of Intent (LOI), ask questions about specific papers, and seek extra information for clarification. Typically, these activities are organized using the data room's Q&A facility, which allows for the secure transmission of requests and responses.
The deal's numerous advisors write a preliminary report summarizing their key findings and submit it with an LOI to show the seller that the bidder is serious. Both the buyer and the seller conduct any necessary confirmatory due diligence, discuss their results, and ask questions to establish what information must be supplied to move the process forward.
Meetings between the buyer and seller's management are held to determine how the company will be organized after the transaction is completed. The numerous advisors analyze the reports and findings to ensure that no major issues have been ignored. The buyer decides whether or not to proceed with the bid's final submission, and if so, whether or not to include a first mark-up of the SPA and/or to request exclusivity.