Pros and Cons of Virtual Data Rooms.
A Virtual Data Room has many of the same strengths as a conventional Data Room - controlling access, viewing, copying and printing as well as setting time limits on viewing - and logging who saw what and when.
Benefits.
The largest financial benefits accrue to the seller although buyers also benefit. For the former advantages include:
- improvement in number of bidders.
- Increased bid throughput (and time zone access) if the virtual data room is accessible 24/7 over the allowed period.
- increased control and understanding of bidders.
- Resulting 20%-30% higher bid values.
- One of the major benefits of a Virtual Data Rooms is the
increased speed of transactions owing to improved accessibility.
- Location: Conventional physical data rooms restrict the bidder or buyers ability to get the correct people to the room simply due to physical location ('we'd rather focus on deals in the ??? area with deals of this size' or 'we are really interested but we can't spare the resources for this one'). Opens up global markets for M&A, takeovers and property deals in the same way that the telegram, telephone and email improved the scope of everyday business communication compared with purely face-to-face and hardcopy document transactions (i.e. business letters).
- Timing: Conventional physical data rooms restrict the bidder or buyers ability to get the correct people to the room at the correct time causing them to pass on some opportunities either before the due diligence process ('timing don't work for this one') or during the process ('wee had some doubts that we couldn't resolve').
- Better information closes more deals at higher prices.
- The virtual data room also allows information to be updated in real-time for all clients and a negligible cost prevent deal-breaking information holes.
Disadvantages
- Unfamiliarity with benefits - Asked the client question do you want to "do this on-line" rather than educating them about the 200%-300% improvement in number of bidders, increased bid throughput and resulting 20%-30% higher bid values. In most cases with physical data rooms, only one bidder team can enter the room at a time. People are brought to the data and key documents moved by courier or post. Due diligence is slowed to two or more times the time that it should take. Physical data rooms need couriers to move or update documents or needing transport of key staff back and forth.
- Failure to keep up with the market leaders such as Astra Zeneca Pharmaceuticals LP, Bank of America, Bank One, Bear Stearns, Deutsche Bank, Dresdner Kleinwort Wasserstein, Ernst & Young, FDIC, JP Morgan Chase, TD Securities, Thomas Weisel Partners and WestLB due to poor familiarity with state of the art practice.
- Poor understanding of ROI. Belief that Virtual Data Rooms are a means of saving money on a relatively small cost centre rather than a means of improving profitability, revenues and deal flow with the same resources.
- Failure to do the specific calculations of the upside.