Can a virtual deal room save your M&A transaction?

I have a friend who works at a small investment bank. Their focus is sell side engagements with small to mid size companies in a select few industries. We were having coffee one morning, and I asked him to walk me through a typical sales cycle, from prospecting to closing a deal. He decided to walk me through an example that began with describing a long courtship with a client. It started with a cold call that led to a conference call and then a series of three face to face meetings. All of this unfolded over a period of 6 months. Finally, the owner of the business agreed to engage my friend’s firm to help him sell his business. He was nearing retirement age and there was no one in his family or at the business who was interested in buying him out. Once the engagement letter was signed, the firm began putting together an information memorandum and financial package to share with potential buyers. As part of their business they also actively seek out buyers and already had a short list for this target. The short list consisted of 6 potential buyers. Total cost of wooing this client including travel and entertainment was in the tens of thousands of dollars, which does not include anyone’s time.

Twelve CIMs were prepared and a collection of accompanying documents assembled. What happened next astonished me – my question was simply “how do you circulate the information to the buyers?” Understanding the business I am in, he smiled nervously – the answer it turns out was not so simple. With a little coaxing, I was able to get him to admit that they send the digital file of the CIM to a printer via email and wait 24 hours for the printer to create hard bound copies of the document. They also purchase 10 zip drives and copy all of the accompanying files onto them. The CIMs were sent next day via courier and the ZIP drives were also ready to be couriered to the buyers -showing interest in signing an LOI. Total cost for the glossy hard copies and the zip drives was approximately $800 with a wait time of about 72 hours for delivery.

Three buyers signed an LOI and over a three month period additional information was requested three times. Each time a request was received groups of files (too large to email all at once) were put on a thumb drive and couriered –wait time was another 24-48 hours. This meant that 3-6 entire days were spent simply waiting for information, and then additional days were spent following up to make sure people received the information and had reviewed it. It was at this point that I became very passionate, almost animated in my conversation -explaining the instant nature of sharing files online and the reporting feature which enables real-time tracking of who has  viewed each and every document – I regained my composure while he finished his story.

Finally, one buyer was identified and a Purchase and Sale Agreement was signed, subject to one final round of due diligence and yet one more “mailing” of a zip drive. Now here comes the hard part. This transaction was unfolding during a particularly trying economic time that we are all too familiar with.  The buyers financing for the transaction had a finite date and the deal did not close in time, so the entire transaction fell apart. Almost a year’s worth of efforts and thousands of dollars invested in a deal that only pays with a success fee – unfortunately, there was nothing to show for it.

I am not suggesting that a virtual data room would have undoubtedly saved this transaction. However, there is no question that time and money invested in a transaction is expected to pay off and saving days by making information instantly available online could make the difference  when closing a transaction comes down to the wire. There is a happy ending to this story –  8 months later my friend closed his deal and everyone walked away happy. An even better moral to the story – this time, they used a virtual data room. The next time you have a price sensitive client who is mulling over the decision to spend a few thousand dollars on a multi-million dollar transaction, consider the following:

  • Mailing documents in paper or digital form wastes valuable time.
  • Due diligence documents change and can multiply exponentially over time.
  • Most clients will pay to accelerate the due diligence process.
  • Bank financing can expire, particularly in a world of uncertainty.


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