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.

Data Room Performance Improvements at Firmex: An Overview

Feb 25, 2010 - by Marcel Meyer

Because data room performance is important to our clients, we recently released the first wave of our new software architecture to address the growing demands of our customers.

For the past few years, our customers have primarily used our data rooms for M&A deals which are usually made up of around 300 folders containing 5000 documents. However, as our clients are adopting electronic deal rooms for other uses, such as litigation and clinical studies, we decided to adapt to these new requirements. Some of these virtual data rooms might have over 80,000 folders containing more than 100,000 documents.

We’re excited to roll out our new architecture that supports sub second data retrieval, even on these large scale deals.  These improvements represent considerable time and money savings for our clients working with multiple small to large transactions. The litigation and life sciences verticals will greatly benefit from these data room improvements.

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.

Virtual Data Rooms Offer a Secure Alternative to Email

Mar 9, 2010 - by Nicole Black

As discussed last week, the unencrypted email systems used by most law firms are inherently insecure and place confidential client data at risk.

However, there are secure alternatives to email, using cloud computing products, like Firmex online document workspace, that incorporate some form of encrypted client communication into their platforms. These cloud computing platforms provide lawyers with a ready-made solution to the problem of unencrypted, insecure email.

There are a number of products available that allow attorneys to securely exchange large volumes of confidential documents and information with opposing counsel, clients and others. For example, law firms can use secure virtual data rooms such as those provided by Firmex,  to collaborate and communicate with other users, manage online due diligence, exchange closing drafts, create digital record books, share litigation documents, and secure client access to important files.

Virtual Data Rooms: Modernizing the Workspace

May 12, 2010 - by David W. Hammer

Most of Firmex’s clients are now using the internet to distribute seller’s books or confidential information memorandums when managing a sell-side M&A transaction. However, there are firms that are continuing to create physical books, which can range from 50 to 200 pages. These books are typically distributed to a large number of potential buyers, particularly if an advisory firm routinely markets transactions to a database of private equity firms.

The recent advent of the kindle, the iPad and other paper eliminating devices serves as an interesting marker of just how archaic a practice it is to produce physical books for an industry as fast paced as M&A.  Producing that many physical books is outdated, expensive and time consuming.

The cost (not to mention the carbon footprint expenditure) to produce, print, bind and ship one book can be upwards of $100 and can take anywhere from 24 to 48 hours to reach its destination. If you are marketing a transaction to 40 potential buyers with a seller who wants to close quickly, this lag time can significantly affect  profit on the transaction (or the seller’s cost) and the transaction timeline.

Book Review: The Checklist Manifesto

Jul 8, 2010 - by John Gillies

In The Checklist Manifesto, Dr. Atul Gawande examines how the use of checklists can significantly improve workflows and outcomes in the work environment. He focuses primarily on the aviation and construction industries, and analyzes where and how checklists are used. He speaks as well about his experience in a WHO-sponsored initiative bringing checklists to surgical operating theatres around the world. There are, I believe, possible applications of his ideas within a law firm.

[Dr. Gawande is a general and endocrine surgeon at Brigham and Women’s Hospital in Boston. He is an associate professor at Harvard Medical School and leads the World Health Organization’s Safe Surgery Saves Lives program. He is also the author of two other books, Better: A Surgeon’s Notes on Performance and Complications: A Surgeon’s Notes on an Imperfect Science", and is a staff writer for The New Yorker. The genesis for his book was an article on checklists in The New Yorker in December 2007].

Dr. Gawande examines in some detail the genesis of checklists in the aviation industry, a major result of which is the incredible safety record that the industry enjoys, despite the obvious complexity involved in any flight.

How Can Lawyers use Virtual Data Rooms in Their Practice?

Jul 20, 2010 - by Nicole Black

As I’ve discussed in the past, online collaboration platforms generally allow for far more secure communication than email and offer attorneys a secure online location for collaboration.

But what types of specific transactions can be handled in online collaboration platforms such as virtual data rooms? Well, the answer depends on the type of law that you practice.

Likewise, online document repositories can be very useful for real estate matters, allowing lawyers to more easily manage sales and leases, in addition to restructuring asset backed loans & mortgages.

Restructuring and Insolvency transactions are also well suited for virtual deal rooms. Lawyers can use virtual data rooms to organize files in multiple structures within the same project to control access to files and functionality and create additional deal rooms to buy and sell assets, close financings, or raise additional capital.

Personalizing a User’s Due Diligence Review Experience Using Document Flags

Oct 7, 2010 - by Ronen Segall

A due diligence checklist may contain thousands of documents, with new documents being uploaded daily. So how do your customers keep track of their due diligence activities?

Similar to an Inbox in email, Firmex marks each user’s documents as new, read or unread. Every document that is uploaded to a checklist receives a document flag.

- An exclamation point next to the document indicates that the document is new to the user .

- An unopened envelope next to the document indicates that the document hasn't been read by the user . 

- An opened envelope indicates that the user has read the document.

What Makes Firmex Virtual Data Room different from generic Online File Sharing?  Process IP.

Dec 20, 2010 - by Joel Lessem

I get many people asking me how is Firmex different from Box.net, SharePoint or other generic file sharing platforms?  Perhaps a recent conversation I had with KKR-ACCEL, a mid-market private equity firm, describes it well.  They look for organizations that deliver “vertical IP”. Vertical IP means they are non-generic and automate specific processes in a given industry.  Firmex is similar, but automates specific processes that are cross-industry.  We have what you could call “process IP”.  Our client support staff is regularly asked how to set up a structured document sharing environment for an M&A transaction, an insolvency file, a procurement process, a financial audit or litigation case.  We have built-in templates for these types of processes.  The common attributes are that they all generally involve a lot of sensitive documents with complex document security and access rights, a large group of participants, and a mission-critical project.

Organizations are rapidly moving data online, not just as temporary staging area but as a permanent secure and reliable repository.  We are seeing this from organizations ranging in size from small businesses to Fortune 500 companies.  With Software as a Service, organizations can plug in “best of breed” document sharing products that best fit specific business processes without any burden on IT. While generic online file sharing applications will prosper, I also foresee a “long tail” of document sharing solutions that have “process-specific IP” for more complex business processes and user support needs.

The benefits of buy-side business development with an unlimited use data room

Mar 31, 2011 - by Joel Lessem

A number of our clients are buy-side professionals in corporate development roles with aggressive mandates to grow their business through acquisitions.  Over the last few months I’ve talked to a number of them about their acquisition strategy and why they choose Firmex for their virtual data room needs.

In the case of one client, the mandate was to acquire $20 million in EBITDA per year, and they were pursuing residential care facilities with annual revenues in the range of $2-3 million.  This client used Firmex over the course of the year to evaluate twenty deals, which allowed them to efficiently choose the ten deals they needed to reach their EBITDA targets.

Their acquisition targets were happy to have the buyer drive the process, and they appreciated the ease and convenience of using a secure data room to upload sensitive documents for evaluation.   Our client was happy because their annual data room costs were fixed, and they found additional uses for Firmex after each deal was complete, such as using the data room as a portal for integration planning.  At no extra cost, coordinating integration efforts within the data room brought all their stakeholders together.  The easy online process helped them achieve greater transparency and governance through the consistent application of due diligence checklists that adhered to their guidelines.