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Wednesday, November 12, 2008

SaaS Technology Supports Virtual Data Room (VDR) Offerings for Mergers and Acquisition Markets

Having participated in several large mergers and acquisitions in my career, I am very familiar with the burdens associated with managing the massive amounts of paper required to complete due diligence requirements. And, having spent the last 24 months investigating SaaS based technologies and applying them to the eDiscovery market, I have recently become convinced that there is a tremendous amount of common demand across these markets with the opportunity for common and/or synergistic solutions. Further, I believe that there are leading edge SaaS technologies such onDemand Electronic Data Discovery (EDD) and Online Review Technology (ORT) that are currently emerging in the eDiscovery market that will have cross applicability in the VDR M&A market and I am sure that there are new technologies in the VDR M&A market that will be found to be useful in the eDiscovery market.

Eventually, I predict that there will be a convergence of platforms across these markets with VDR's that support eDiscovery, eCompliance and M&A.

Given my newly found interest in SaaS based technologies for the M&A market, I recently found a blog posting titled "Leading the VDR revolution" on the that provides an excellent overview of SaaS based VDR.

The full text of that posting is as follows:

In a relatively short time, the introduction of website-based technology to the world of mergers and acquisitions has revolutionized due diligence. The traditional paper-based 'war room' is fast becoming a thing of the past.

Conducting due diligence no longer means bidders must travel to a physical room and work around the clock, taking turns reviewing piles of complex paper documents. The concept of the VDR - first developed in 2001 - is simple. Parties involved in a transaction are invited to the VDR website by the host, who grants them personalized access rights. These participants are free to peruse their list of documents, conduct searches, print and save permitted documents, all based on their levels of access. All parties can work simultaneously, at their own pace, and at any time of the day or night, from anywhere in the world. Everyone benefits. Sellers are able to attract a broader range of buyers, and receive valuable insight into buyers’ interest in their deal. VDR streamlines the entire due diligence process, creating a much quicker path to liquidity.

Although the worldwide VDR market is relatively embryonic, the demand is increasing at an impressive rate. It is estimated that virtual data room technology was in use for almost 70 percent of all North America-based M&A deals in 2007, and the trend is spreading internationally, with the use of a VDR becoming more popular throughout Europe and Asia.

This growth can be attributed to five key factors:

1) Globalization of M&A: Sellers naturally want to cast a wider net. A virtual data room enables them to reach more potential buyers than ever before, extending the invitation to buy across borders and language barriers.

2) Drive to efficiency: Companies (and shareholders) want their advisers to work efficiently and complete the process quickly. Virtual data rooms often reduce deal duration by 50 percent or more, saving considerable time and money. Bidders also enjoy cost efficiencies, with immediate access to business-critical information and reduced travel costs.

3) Compliance demands: With the current atmosphere in corporate governance driving buyers to ever deeper due diligence, the virtual data room provides opportunities to capture and report the details of due diligence review at unprecedented levels, providing peace of mind to buyer and seller alike.

4) Pressure to put capital in play: A virtual data room opens doors to a wider range of bidders and accelerates transaction speed. The end result is that bidder traffic is increased, more deals can be done in a shorter time frame and valuable capital is engaged quickly.

5) Expanding range of uses: Demand for other uses of virtual data room technology is increasing as companies and their intermediaries deploy a VDR for more types of transactions. Such uses include, but are not limited to, the facilitation of post-merger integration, pre-IPO collaborative workspace, portfolio company information management at private equity firms, hedge fund management and corporate data repository.

How do you determine which company is the best virtual data room partner?

A first step is to identify best practices and then use them as performance yardsticks. Here are nine important considerations for making a VDR purchasing decision:

1) Ensure the solution provider has an established track record of delivering quality service. It is critically important that buyers of virtual data room service do their own due diligence to ensure that a provider is customer-focused, has a proven technology and a track record that is strong and easily referenced.

2) The solution should integrate leading technology, support industry standards and work with globally accepted data formats. Technology should alleviate headaches – not add to them. The ideal solution will embrace ease of use and open standards while supporting legacy applications and databases. The deal owner and user experience should be easily customized rather than a one-size-fits-all process or off-the-shelf software. The technology should work with all globally accepted data formats for document sharing.

3) Choose a solution provider with deep domain and project management expertise. Confidentiality is paramount. Choose a company with a strong track record of success with the management and distribution of confidential information. It is important that a VDR provider understands the transactional business environment. Insist that a project management and service team has the specific expertise needed to communicate with any party to the deal professionally and competently. Top-tier solution providers offer comprehensive and ongoing support with consistent points of contact to maintain continuity.

4) Production facilities should be available around the globe for accelerated document capture. When time is of the essence, immediate document collection and delivery to the virtual data room may be a requirement. The best solution providers have document scanning facilities located in cities around the globe. Their teams specialize in making sure that a client’s unique document needs are met quickly and efficiently.

5) Ensure that changes can be made and questions can be addressed immediately, even in multiple languages. In the midst of a deal, flexibility is key. Sometimes requirements and needs can change in an instant. The ideal virtual data room should be designed to facilitate instant updates by any empowered user. Best-in-class solution providers employ client-facing resources with the skills and experience to counsel clients in effective ways to manage the mountain of data that a transaction requires.

6) The solution must engage the highest security. In a virtual data room environment, security is of the utmost importance. A potential partner’s technical capabilities – as well as their experience with sensitive corporate information – should be important considerations.

The following capabilities should be in place:

Uncompromising and reliable security measures covering the application, staff and infrastructure; SAS 70 Type II certified hosting environments; Global, multi-location data hosting with zero-downtime network guarantee; High-performance data back-up carried out many times a day; Database replication stored at dispersed geographic locations;
A core competency in handling sensitive financial and business information.

7) Look for rapid data room deployment. Among virtual data room solution providers, speed is a key differentiator. Top-tier virtual data room solutions provide the tools to create indexes in minutes, not days, and enable document review in real-time as documents are captured, processed and posted.

8) Inquire about audit trail and archive capabilities. Audit capabilities are among the most important elements of any virtual data room, and should be examined carefully. The site host should be able to readily monitor user activity to gather intelligence related to buyer interest. At the close of the deal, comprehensive auditing capabilities can provide important proof of disclosure. User activity reports should be captured and delivered at the end of the project on storage media, providing an archived audit trail.

9) Remember: The solution is a rich service, not a software application. No two M&A transactions are the same. Sellers need a flexible system that can be easily customized, in conjunction with an expert project management team. It is important that the solution is robust and clients can choose to manage their own documents or rely on a professional project management team.

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