Data Room Background Information
Data rooms are used in many different types of transaction where the vendor (in the case of a property, M&A or share sale) or the authority (in the case of a PFI/PPP project) wishes to disclose a large amount of confidential data to proposed bidders typically during the due diligence process. The traditional data room will literally be a physically secure continually monitored room, normally in the vendor’s offices (or those of his solicitors), which the bidders and their advisers will visit in order to inspect and report on the various documents and other data made available. Often only one bidder at a time will be allowed to enter and if new documents, or new versions of documents are required these will have to be brought in by courier as hardcopy. Teams involved in large due diligence processes will typically have to be flown in from many regions or countries and remain available throughout the process. Such teams often comprise a number of experts in different fields and so the overall cost of keeping such groups on call near to the data room is often extremely high.
The phrase mergers and acquisitions or M&A refers to the aspect of corporate finance strategy and management dealing with the merging and acquiring of different companies as well as other assets. Usually mergers occur in a friendly setting where executives from the respective companies participate in a due diligence process to ensure a successful combination of all parts.
On other occasions, acquisitions can happen through a hostile takeover by purchasing the majority of outstanding shares of a company in the open market. In the United States, business laws vary from state to state whereby some companies have limited protection against hostile takeovers. One form of protection against a hostile takeover is the shareholder rights plan, otherwise known as the "poison pill". See Delaware corporations.
Historically, mergers have often failed to add significantly to the value of the acquiring firm's shares. Corporate mergers may be aimed at reducing market competition, cutting costs (for example, laying off employees), reducing taxes, removing management, "empire building" by the acquiring managers, or other purposes which may not be consistent with public policy or public welfare. Thus they can be heavily regulated, requiring, for example, approval in the US by both the Federal Trade Commission and the Department of Justice.