Author: Spencer Chu (spencerchiu@snpcorp.com)
“Caveat Emptor,” translated to “Let the buyer beware” has always been the main principle of trade and sales throughout history. Buying goods, real estate or any asset can be a straightforward transaction where all information can be easily reviewed or a harrowing experience where relevant information can be difficult to find, disorganized and generally unreliable. In the world of M&A transactions, the demand and popularity of using Virtual Data Rooms for due diligence reflects the importance of bridging the gap of supplying information that any buyer will need. So indeed, sellers must ensure that all relevant information to facilitate the sale is made available. Access to various financial statements, valuation and technical reports, material contracts, deeds or incorporation records should be easy, but also controlled and often restricted. With the advent of technology, sellers can allow buyers to conduct due diligence in a controlled and secure environment. Being able to direct how documents are shared means control and along with password protection, high levels of encryption. Secure servers are the basics for these controlled and sensitive environments.
Sellers may find themsleves in a variety of situations that bring out different aspects of their transactions. For example, there will be some instances where a buyer is actually in direct competition with the seller. How does the seller balance the risk of letting such a buyer have free access to sensitive information and at the same time facilitate the due diligence process for the other buyers? There may be other instances where the seller already has a good perception of the potential buyer’s interest and considers more information should be made available to just that highly-rated buyer? A well-designed permissions system in a VDR addresses these issues and allows the seller to control which documents can be accessed by which buyers. Additional control can be granted over viewing, printing, or saving of specific documents. From both the seller and buyer angles, this all needs to be done on a real-time basis where the seller can change the settings as new events occur ensuring that buyers have all the access rights they need.
As buyers pore over all the information to complete the due diligence process, there is a flip side. A side where the seller gains great insight during the due diligence information sharing process as it occurs in the VDR. With buyers demanding easy access, 24/7 availability and speed in sharing documents, and with sellers actually taking up the responsibility of disclosure by hiring a VDR provider, there is actually a distinct advantage that arises which is unique to sellers – the advantage of having valuable intelligence on the buyers. What exactly is this buyer intelligence? Since all review activity is carried digitally and online, access to documents can be tracked and sellers can use this data to gauge a buyer’s mentality and also formulate an insight in his thinking process. How many times has the prospective buyer logged in? How many times has he viewed a particular document? Which documents were printed out? Imagine if a certain financial document was viewed 15 times more than any other document or that one prospective buyer logged in just once and only for 10 minutes ? Such insight can be extremely useful in helping sellers map their strategies and prepare for the Q&A process.
As buyers exercise their right to information and perform due diligence to ensure their buying decisions are justified, sellers, through deployment of a well-designed VDR system, can also be “in the know”. Comprehensive activity reports from the Virtual Data Room can usually provide valuable insights about buyers. In our VDR offering, as we let the buyer beware, the seller can now be aware.
