In the first of three articles entitled ‘Getting Yourself Deal Ready’, Mishcon de Reya's Corporate Associate Ammar Thair explores the role of data rooms in running an efficient transaction.
At the start of any transaction (whether M&A or investment-focused), one of the biggest initial challenges will be the need to collate, review and maintain a large number of documents, often within a short timeframe.
Although you may have agreed a deal, signed an NDA or a term sheet in principle, make no mistake; what follows will be an open heart surgery of your business. The buyer or investor (alongside their lawyers) will look to review and examine the health of every single aspect of the company, from the financials, tax and legal records, right through to the commercial contracts, liabilities, employees and intellectual property, to name a few. Good preparation can be the difference between the life of your company, and the success of the deal.
For overall logistics and support, you should co-ordinate with your legal advisors at the earliest opportunity to get things planned out and in motion. One of the most useful things they can do is to provide you with a tailored legal checklist, guide you on what documents the buyer/ investor will be looking for, and walk you through the common questions therein.
Consequently, you will be able to plan, prioritise and prepare (alongside your staff/colleagues), allowing your business and the transaction to run smoothly and in tandem.
Whilst you may no longer be dependent on physical documents (with files being stored and accessed electronically), you should not underestimate the time needed to review the legal checklist, obtain and source all of the relevant materials, and rectify any issues found within. Naturally, in the same way that teamwork brought you to this point, there will need to be a great deal of effort from the company (the founders, management team and other departments) when gathering the relevant documents and data, ready for review.
Once you have obtained the relevant documents, you will need two things: first, a place for them all to be uploaded, indexed and easily maintained, and second, for your legal team to conduct an initial review of the documents, identifying any pre-existing issues early (allowing for easier treatment), and in advance of the buyer/ investor finding the same (maintaining the company’s appearance in the face of increasing scrutiny).
There are now a large number of sophisticated virtual data room (VDR) providers, and many law firms will have their own internal VDR systems designed to make the process as integrated and as simple as possible. In terms of the initial review and due diligence, your corporate lawyers will conduct the initial review and may recommend engaging with colleagues from different practice areas (such as employment, commercial technology and real estate), perhaps making use of certain AI software review products, if appropriate.
Overall, whilst the emergence of new technology and sophisticated virtual data rooms have, to some extent, simplified the initial stages of a transaction, one should not underestimate the importance, time or resources required herein – once all parties have been invited into the data room, the real operation will begin.
For more information, please contact Ammar Thair, Associate in Mishcon de Reya's Corporate team.
Other articles in the 'Getting yourself deal ready' series:
Due Diligence: Getting yourself deal ready
Disclosure: Getting yourself deal ready