•  What is Due Diligence
  • Data Room oVerview
  • Traditional vs. Virtual
  • benefits
  • comparison
  • checklist
  • contact
  •  

     

     

    Traditional vs. Virtual Due Diligence


    A Traditional Due Diligence Data room is often more expensive with few advantages over the Virtual Due Diligence Data rooms price, flexibility and features.

     

    Here is a collection of the Good and the Not-So-Good as related to Traditional Data Rooms (those in a lawyers office or conference room) and Virtual Data Rooms (those accessed via the Internet).
     

    The Pros & Cons . . . .

        Traditional Virtual
    1. Typical data room location Lawyers Office Online
    2. Effort to create data room Moderate Low
    3. Document Security Moderate High
    4. Cost High Low
    5. Ability to record bidders activities None Yes
    6. Ease of access to data room Low High
    7. Speed to securing an offer Longer Faster
    8. Ability to lower investor risk No Yes
    9. Ability to add a "Last Minute" bidder No Yes
    10. Ability to document who reviewed what No Yes
    11. Multiple bidders in data room No Yes
    12. Ability to notify all bidders of "New Info" No Yes
    13. Ability to restrict document access No Yes
    14. Impact on final offer Neutral Increases


    The
    following is a more detailed explanation of the information listed above:

    1. Location - a Traditional data room is usually not at the company offices.  You should not have buyers or potential competitors walking around your offices.  You may onto want your employees distracted by the constant parade of bidders.  A traditional data room is usually located at a nearby lawyers office to increase security.  This also increases costs. A Virtual data room is located on a secure server at a third party data center.  Since the data is encrypted and accessible via the internet the location is not important as long as it is accessible 7x24.

    2. Effort - Creation of a Traditional data room usually involves indexing and photocopying vast amounts of paper.  You cannot risk putting the only Original copy of an important document in a data room just to have it damage or worse yet, disappear.  Creation of a Traditional data room also will require the printing and indexing of many electronic documents, financial spreadsheets and contracts. While many paper documents must be scanned to create the electronic images for a virtual data room all of the electronic documents can be processed online. Assuming you have selected a service provider or software solution that makes indexing and data room creation easy the total effort is lower with a virtual data room.

    3. Security - With a Lawyers office the security is only as good as the paralegal who is in the room taking care of the documents. document can disappear. One advantage is that with a traditional data room you do have control over physical access.  You know who enters the room. This level of physical security can be achieved with the right Digital Data Room software. While most providers have limited security some offer highly secure solutions. If implemented correctly a virtual data room can be more secure than a lawyers office. You can restrict who sees what documents and who can copy what documents.

    4. Cost - A Traditional data room is not cheep after you add up the labor to copy and index all the documents plus the legal office space to manage a multi week data room effort. A Virtual data room requires less effort to create (with the correct software) and the cost for the virtual data room is usually measured in 1) users who need access, 2) pages of documents in the data room, or 3) weeks data room is active. Usually it's a combination of these factors. The bottom line is that the total cost will be less!

    5. Record Activity - Using a Traditional data room you cannot record who sees what document.  With a Virtual data room, however, (assuming you hire a solution provider that uses good software) your investment banker can review daily reports of which bidders looked at which documents.  he can see who is interested in future revenue opportunities, who is interested in a specific partner contract, etc.  Information is POWER. A wise investment banker can use this power to leverage additional value during the bidding process. 

    6. Ease of Access - Some potential bidders will refuse to bid simply because they are too busy to travel to the data room.  Having a Virtual data room allows them access 24 hours a day 7 days a week from anywhere in the world.

    7. Speed to Offer - A traditional data room usually takes weeks to manage as one bidder after another schedules access to the room. With a virtual data room everyone has access on day one and most are finished reviewing the documents in a couple days.  This means the deal time is shortened significantly.

    8. Lower Investor Risk - Being able to look at documents 7 x 24 gives the investor more time to review documents. The more he becomes comfortable with the documents the fewer questions and concerns he has.  Your objective is to LOWER his RISK CONCERN.  The more comfortable he is with your company's ability to perform the lower risk he will place and the higher his offer will be.

    9. Last Minute Bidder - It is almost impossible to have a "last minute" bidder with a traditional data room. with a Virtual data room is is not only easy it can be a well scripted tactic.  If one company ids about to purchase you you could offer you competitor an opportunity to bid.  You might not want to include him early in the process as you may expose too much to a competitor in the event you do not accept any offers.

    10. Document Reviewers - On advantage a Virtual data room offers is an electronic record of who reviewed which documents (assuming you use good software). This could be invaluable to your lawyer if a potential buyer cry's "foul" because there was something in the data room that he says we was not allowed to view.  You can show him who within his company viewed it and on what day.

    11. Multiple Bidders - A Virtual data room by its nature can allow all users to access the same documents concurrently and in private.

    12. New Info Distribution - Bidders will often submit questions and request additional data.  Your investment banker will manage this to minimize the work but additional data will likely be required. With a Virtual data room is is very easy to add new documents to the data room and notify everyone of its posting.

    13. Restrict Access - With an online data room you can let one company see detailed responses to specific questions he requested without sharing that information with everyone.

    14. Impact on Final Offer - A well manage Virtual Data Room can not only reduce expenses but help increase the final offer for your company.  This is done by reducing the time you spend on task other than running the business and providing the investment banker with information to help him drive the price up.

     

     

     







     

    Copyright 2007, All rights reserved.