Electronic Data Rooms
Reducing Risk will help earn you an Extra X of value for your company, and by having electronic data room ready and waiting potential buyers will signal several things.
1. That you are more sophisticated than they originally thought
2. That you run your business tight – in a controlled manner
3. That you probably have went through this effort because you have more than just them interested in your company (competition is always a good thing)
Why electronic? It will save you time and effort and allow the potential acquirer to save time and effort. In one case I forwarded our formatted operating metrics in an easy to read spreadsheet which the acquirer could easily use to perform financial analysis. Saved them time and allowed me to frame their analysis in the most favorable light for me.
You may also be thinking that if it is electronic won’t that make it easy to expose the secrets of my business to the world. In a word – YES! But unless it is a trade secret formula or the plans for your next big product release I would not worry about it. That is what Non-disclosure Agreements are for and by this time in the process you are pretty sure of the other side’s intentions. Besides they are about to buy your company and they do not want their soon to be secrets out in the public either.
So what should be included in the data room? A simple answer is the information necessary for the deal person on the other side to persuade his boss that your company is worth more than he has already indicated they are willing to pay. There are countless due diligence lists out there. I have attached one example here: Due Diligence List
Another approach to a data room is to include everything that you will ultimately need to represent in a schedule for the definitive agreement. These may include the following:
· All agreements
· Employees and employee records
· List of Real Property
· Lease agreements
· Intellectual Property, including trademarks, etc.
· Tax Returns
· Rate Cards and pricing arrangements
· Detailed Financial statements including sub ledgers for receivables, inventory, and payables
· Web site traffic measurements and logs
· Listing of computer assets and capacity logs
· Shareholders of record, names, addresses, etc.
The goal in taking the above steps is to lower the buyer’s perceived transaction risk. I have been in both situations where the records were a mess and where the records were immaculate. I was willing to pay a little more for the latter as the organization of the company’s records and diligence binders gave me confidence that I was not going to run in to any whammies after the close.