Virtual Data Room Activity a Leading Indicator?

Jun 29, 2009 - by Aaron Booth

Over 250 financial and legal advisory firms are using their own, privately branded Firmex data rooms. Firmex-powered deal activity was up 255% in Q1 2009 versus a 10% decline in Q4 2008.  According to Firmex’s M&A advisory clients, the increase is a result of sellers bringing deals back to market. The majority of the increase occurred late in Q1 2009, and the trend is continuing into Q2 2009.

Firmex advisory clients are busier with more deals, and the deals are lasting longer and appear to be more challenging to close. Tight credit conditions and lower valuations are most likely key factors. Over time, the number of active deals that firms are managing in this environment is increasing and deals are being reviewed by many potential buyers. This puts pressure on deal makers, as deal cycles are long and unpredictable.

Firmex helps to alleviate this pressure by allowing firms to manage an unlimited number of deals indefinitely in their virtual data room. Deals can be started, stalled, and reopened as needed, in a fast, easy and efficient manner. In addition to securely sharing due diligence information, Firmex is also being used to organize the distribution and storage of NDAs, Information Memorandum, and LOIs. This flexibility and deal lifecycle management enhances M&A advisory firm’s ability to react quickly for clients.  This is especially important when deals get hot and being “deal ready” will help to close deals faster and mitigate risk of the deal stalling.

Defining Due Diligence

Feb 18, 2010 - by Aaron Booth

In the business world, Due Diligence refers to the act of investigating information related to people and businesses. This can be on a voluntary basis as in conducting a background check on a future employee, or it can be a legal requirement as in investigating the legal issues around a corporate takeover bid.  However, the most common type of Due Diligence performed in business typically relates to that which is performed in relation to a merger or acquisition (M&A).

The M&A process involves buyers and sellers of businesses connecting with other buyers and sellers to complete transactions that result in one business acquiring another or two business combining into one. For example, in a typical sell-side M&A deal, a seller put together a confidential information memorandum (CIM) and distributes that document to potential buyers.   When serious buyers are identified, letters of intent are signed and the seller shares additional information with the buyers.

This is the preliminary Due Diligence, and the point at which interested buyers investigate more detailed information to determine if they will submit a letter of intent to enter into a purchase and sale agreement and close the transaction. Once a final buyer has been identified, the real Due Diligence begins. It is at this point that the potential buy and seller have agreed to share all information related to the business so that the buyer can investigate the financial statements, tax returns, inventory, fixed assets etc. in an effort to verify their understanding of the state of the business and to finalize a purchase price. In some instances, Due Diligence has been described as a process in which buyers look for reasons to reduce their risk and lower the purchase price prior to the close of a transaction.

Virtual Data Rooms: Unlimited-Use Closes Deals Fast

Mar 4, 2010 - by Joel Lessem

In any deal, time is risk.  The longer it takes to close a deal, the greater the potential for the transaction to get derailed.  Being prepared ahead of time is one way to avoid time delays and risk.

Firmex’s unlimited use virtual data room broadens the range of use investment banks have for their data rooms exponentially: they can collect information to develop and circulate CIMs when marketing transactions and have their client prepare diligence information early. When the LOI is signed, diligence documentation is available and valuable deal momentum is maintained.

Shopping for virtual data rooms at the 11^th hour adds unnecessary risk to maintaining momentum and effectually closing the deal. In some cases our clients may be running multiple transactions as part of one deal (eg.debt refinancing, 3^rd party valuations, selling certain assets etc.). With Firmex, clients can startup additional data rooms to coordinate and manage related transactions at no additional cost or delay.

Firmex charges a flat subscription fee for unlimited data rooms at the same cost as a single data room from an alternative data room provider. The M&A advisory firm can set up and maintain control over all their active mandates, have cost certainty for their clients, and get deals organized ahead of time to avoid delays in the M&A process.

Want Liquidity? Consider Selling a Piece of Your Company to an ESOP

Jul 1, 2010 - by William Stewart

While the M&A market continues to recover, business owners are utilizing Employee Stock Ownership Plans (“ESOPs”) to satisfy the need to convert some of their illiquid privately held company stock into cash and other liquid investments.  The ESOP is attractive due to significant tax savings to the owner and company, flexible deal structures and speed with which a transaction can be completed.  With higher capital gains taxes looming in 2011, now is a great time to evaluate this liquidity strategy.

The flexibility of a partial sale to an ESOP provides business owners the ability to:

• Sell a portion of the business
• Save taxes; both personal and corporate
• Motivate and retain employees
• Retain upside in the business

Consider John Doe, a 50 year old owner of an electrical distribution company in the southeastern United States.  John started the business 15 year ago, has achieved fantastic growth but a recent fall off in the business has John interested in exiting the business completely at age 60 (10 years from now).  However, the stresses on his business and decrease in his net worth have him concerned about his personal liquidity and financial security today.