M&A

Everything You Need to Know Before You Use a Data Room

Data Room

Acquisition is an art, and it’s an art that must be mastered if you want to see your business grow. Done well, it can add value and reach, catapulting your company to the big time. Done badly and you will lose time, money and reputation. So before moving on towards setting up a virtual data room, you need to make sure that you have got certain things in your mind.

A good acquisition process will be well-researched, properly planned, and will involve a high degree of flexibility and consideration of the human element that exists outside of the facts and figures.
By definition, the acquisition of a company refers to any deal whereby between 50 and 100 per cent of a target company is bought by a larger entity. This may then lead to the creation of a new firm, under the umbrella of the acquiring brand, or it may simply result in a change in the shareholder structure, with management and brand focus remaining intact. When done well, acquisitions can be incredibly profitable for everyone involved. But it is important that the risks are not overlooked.

There are many variables in play with any potential M&A deal, and it is therefore vital to know exactly what you are doing every step of the way. While each acquisition is different from the next, the following key process steps are always fixed.

1. Set your criteria.

Before looking at the market, set in stone the reason for your forthcoming acquisition and determine the key criteria for a business to be considered for approach.

For example: Do you want to limit yourself to a particular geographic region or business sub-sector? What sales figures should be considered acceptable? What profitability index works best? How many staff members are you willing to take on and of what calibre?

2. Find an interested party.

The best way to approach this is by outlining your ‘must haves’ and ‘nice to haves’, and eliminating any company which does not meet every one of these goals. Once you have a short-list, dedicate more time and resources into learning about each company – if you spot any red flags at this stage, take that company off the list.

It’s important to note that most firms start this process by ear-marking a number of companies from the off. This can be dangerous, as it may lead you to overlook any obvious issues, or to ignore a better fit elsewhere in the market. Always make sure all potential acquisitions are given equal consideration across the board.

3. Conduct first review.

Once you have a shortlist of two or three companies in your sights, your key responsibility is to identify any issues that would potentially de-rail the acquisition further down the line. Focus on highlighting uncertainties and draw up a full risk profile for each firm.

For Example: Are their financial records and statements sound and – most importantly – is their staff a good fit with your organization?

4. Choose a data room provider.

A virtual data room plays important role when it comes to due diligence process. Chosen wisely, it can save a lot of time for both you and your potential investors. Although it is not easy to get a good one quickly,  you would probably have to take some time to do research and it might be worth talking to a few providers before making the final decision.

5. Carry out due diligence.

Once negotiation has started, final due diligence can be carried out. This involves the answering of several key questions: Should the acquisition be made and, if not, why? If finalized, how should the acquisition take place and what formal steps should it include? What key tasks are there to conduct post-acquisition and who is best placed to own them? And the most important question of all – how much should you pay for the business?

6. Confirm finance.

With the deal agreed and all legal and regulatory steps finalized, the formal financing of the deal is conducted. The source of the finance can come from several places but is most often made up from existing stocks and shares. Often cash-for-stock is commonplace with the transaction treated as a taxable sale.

7. Close off.

And that’s it! The acquisition complete, you can move forward as a newly-merged company, with all the challenges and benefits that will ensue.

Related topics:Advice for Dealmakers Advice for Investors Beginning Investor
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