Why Is Unlimited Use of Virtual Data Rooms so Beneficial?

Feb 11, 2010 - by Joel Lessem

It has always puzzled me as to why virtual data room providers charge per data room or per page or total number of users.  How can any company running a deal know exactly how many pages of documents they will have? Or how many users are going to access the deal room? 

Therefore, a buyer is unable to predict the final cost of the VDR. If they misjudge the amount of due diligence documentations or users, they can get stuck with a hefty bill. This type of “multi-line item” quoting is not designed with the customer in mind.

The other item I never understood is why the limitation on the number of deal rooms?  It’s not uncommon to have multiple data rooms for a single project.  More so, it’s the ability to start getting “deal ready” and exchanging documents early on in the mandate. Unlimited use also broadens the scope of use.

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.

State of the M&A Markets - First Quarter 2010

May 6, 2010 - by Mike Rosendahl

After the 2009 recession, expectations were high for renewed M&A activity coming into 2010. As Michael Rosendahl of PCE Investment Bankers, reports, Q1 2010 numbers were somewhat of a disappointment.  Deal volume was highest for distressed companies and companies performing strongly. Companies that fall in between these two categories are having difficulty finding an acquirer. In today’s post, Rosendahl points out that while results were below expectations, the consensus is for an uptick in activity as the year progresses since strategic (corporate) and financial investors (private equity groups) are actively searching for acquisitions.

The first quarter of 2010 started off slower than expected. Nearly all parties were anticipating increased activity for 1Q10, but reality has yet to catch up with expectations. While there are still companies attempting to be sold, the process is taking longer and buyers are more selective. For the companies that are performing well, there is an active market. Companies that are struggling are seeing less interest and lower valuations. In addition, sellers are waiting for valuations and company performance to improve with the hope that they will be able to increase their proceeds from a sale. Today, many business owners are willing to speak about a transaction, but are very slow to move forward.

Market Activity

Transaction activity decreased in all valuation segments in the 1Q10. For acquisitions below $50 million, the decrease was -1.5% versus 4Q09; a negligible drop. Deals in all the other valuation segments sustained more substantial decreases. Transactions between $50 million and $100 million decreased -16.3%, while deals between $100 million and $250 million decreased -25.5%. Additionally, transactions above $250 million decreased by -17.8% in 1Q10. The large decrease in volume with increasing multiples for higher valuation segments is evidence of a point made in a recent article by Mark Aronson, a colleague of mine, who stated that there is a flight to quality for larger transactions.

Virtual Data Rooms for Financial Audits

May 27, 2010 - by Joel Lessem

If anyone  has ever had the pleasure of conducting a financial audit he/she is all too aware that it’s a time consuming process.  The audit process has four main stages:

1. Planning & Risk Assessment:  Are there other factors that could have a material impact on the company and are not evident in the financial reports?  What are the risks of an inaccurate audit opinion?
2. Internal Controls Testing: Are the financial controls rigorous, consistent and accurate?
3. Substantive Procedures: Detailed review of financial information.
4. Finalization:   Create the audit report.

As one might imagine, auditors are typically encamped in the audited company’s offices for weeks, pouring over financial information. It’s inconvenient for the office and it’s inconvenient for the auditor.

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.

Private Placements: Why not use a Virtual Data Room?

Jul 15, 2010 - by Aaron Booth

Recently, I have been talking to professionals that specialize in issuing private placements. A private placement is a funding round of securities that are issued to a select group of targeted, private investors. In my discussions, it has become apparent that there is an opportunity for professionals in this space to leverage the capabilities of a virtual data room, particularly if they manage more than one of these transactions annually.

The existing trend in managing the distribution of documents to investors is email, which is unsecure and unable to provide intelligence. There are multiple opportunities throughout the private placement process where a virtual data room can be used in place of email to provide a faster, more secure method of delivering documents while also unlocking valuable data points that can accelerate the transaction and improve the efficiency of locating qualified and accredited investors that want to participate. The following points demonstrate the opportunities at each stage of the Private Placement process:

Strategic Assessment: Financial professionals first must analyze a business in order to make recommendations on financing alternatives that may include PP. The documents that must be shared can be large in quantity and confidential. A virtual data room is an attractive alternative to email for collecting and sharing this information in an organized fashion while keeping the data safe.

4 Tips on Closing a Buyer

Oct 7, 2011 - by Joel Lessem

I have spoken to many entrepreneurs and intermediaries.  Some of my peers in my CEO circle who are approached by a potential acquirer, are at times more focused on “what’s in it for me” versus their buyer’s mindset.  

Bottom line is first you need to qualify your buyer.  Once you’re satisfied you need to make sure you’re easy to deal with.  This should not be a tug of war.  It’s a courtship ending in a marriage! 

‘Financial Reporting Valuation - The Market Participant’ a PCE Companies’ Perspective

Nov 14, 2011 - by Brett Cooper

ASC 820 - Fair Value Measurements and Disclosures sets forth the definition of Fair Value as "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date". Paramount to the definition is the concept of the "Market Participant".

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Audit Firms Turn to Virtual Data Rooms to Help Improve Audit Process

Apr 12, 2012 - by Debbie Stephenson

Disappointing results from a recent inspection report by the Canadian Public Accountability Board (CPAB) are driving audit firms to find new solutions that challenge the traditional audit process.

The CPAB, which oversees the work of Canadian audit firms, said it was “disappointed” in the progress being made on improving audit quality. Its concerns were directed toward both smaller regional firms and the “Big Four” national accounting firms, which audit about 94% of Canada’s publicly traded companies by market size. CPAB found deficiencies between 20 -26% of the audit files it reviewed at the Big Four firms and 47% of the audit files it reviewed from 10 smaller firms.