I’ve been thinking… Dell’s Special Committee has its investment advisor, Evercore Partners, combing the market for rival bidders for Dell…not an easy assignment since CEO Michael Dell is part of buyout group that Evercore is trying to supplant. So far, we’ve learned that HP and Lenovo are performing due diligence and that Carl Icahn has just executed a confidentiality agreement, which provided access to non-public information.
But how is non-public information made available for such due diligence investigations?
Due diligence is an evolving and iterative investigation process. Specific aspects of diligence investigations vary depending on the type of transaction, the stage of the transaction, the individual facts of the transaction, the nature of the businesses, operations, accounting and finances at issue.
The use of virtual data rooms (“VDRs”) has now become standard operating procedure for M&A deals, letting selected potential bidders efficiently get the required look see at key data necessary to complete their due diligence investigations. VDRs replaced physical data rooms (AKA “war rooms”)…conference rooms with large tables literally filled with hard copies of key documents. Since public firms already have their reported data available digitally, making non-public data available digitally was only logical.
Data rooms (virtual or physical) are a mechanism to provide access to due diligence information in a controlled and confidential manner. One reason for using data rooms for M&A investigations is to provide a record of the actual materials made available for investigation and the date and names of those who had the opportunity to review materials, which may help limit subsequent disputes about what information was provided, when or to whom. Centralizing documents in a data room can also increase efficiency of the diligence process (for example, by organizing the documents to facilitate review) and can help protect the confidentiality and authenticity of the documents. Furthermore, procedures for following up additional document requests or clarifications are centralized.
VDRs simply do not have to deal with the set of rules or procedures that physical data rooms had to comprehensively address: for example, the dates of availability the conference room and hours of operations, staffing of the room, control over access (Who? How many at a time? When? Appointments versus walk-ins?), procedures for note taking and copying. In contrast, VDRs provide controlled access to approved users, providing a record of what was accessed, when and by whom. Also, there’s no need to limit the number of viewers or the timing of access. With VDRs, M&A due diligence is more efficient and tightly controlled…leaving conference tables once again cleared and copy machines no longer over worked.