Yesterday I was on the phone with an attorney who recently completed a $20m M&A deal, and he commented that the data room he used ending up costing his company $25,000. I asked him, how did you end up paying $25,000? The attorney said “Oh, they charged $1 a page and we kept having to add documents through the due diligence period which tripled the original estimate. Buyers nowadays are more cautious, they want to see everything”. The $25,000 was not an expense to the advisor or the attorney, the client paid it along with his other transaction costs. “The client was not happy” said the attorney. “But what are they going to do? Stop a $20m transaction, where key stakeholders are pocketing a seven-figure pay day?”
Anyone who wants to avoid the surprise costs of per page pricing should do the math up front. Let us assume the price for the data room is quoted at $1 per page, which means you have to start counting pages. Let’s say I am selling the REIT of 100 properties with 1200 lease agreements, 100s of vendor contracts, audited financials, environmental assessments, governing documents, employee paperwork, one pending legal action, tax information and the list goes on. I need to invest valuable time and money to get my staff to start counting the pages in the 2000 or so documents so I can understand what I will pay for a data room service. Meanwhile the actual data storage and cost of those pages is not material to the virtual data room service provider. The hosting and bandwidth cost of a page is fractions of a cent per month. So why charge for it? Can’t they just charge a flat fee?
To charge per page is a “printer’s paradigm” not a “software paradigm”. A virtual data room is a highly robust, secure software application, where the software can handle projects with almost any number of documents and only a minor variance in cost that has little or no correlation to the number of pages loaded. Because the most expensive part of running a data room is the paying for expert 24/7 support, the cost to providers is most highly correlated to how many support calls come in from users – and the number of calls is based on how intuitive their software is, and how adept the end users are at running the data room. As one partner at a major law firm once told me, she runs close to 80 deals a year and she said to her admin team, “if you know how to use Facebook, you can easily learn how to run the data room”.
We charge a flat fee for our service, which means no surprises for clients and no one has to spend time counting pages!