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Mergers and Acquisitions (M&A) Due Diligence is an essential activity in M&A transactions.
In the M&A process, due diligence allows the buyer to confirm pertinent information about the seller, such as contracts, intellectual property, finances, and customers.
By gathering this information, the buyer is better equipped to make an informed decision and close the deal with a sense of certainty.
Letter of Intent:
Due diligence generally commences when the letter of intent (LOI) is signed. It is also best to sign a non-disclosure agreement (NDA) before any confidential information is exchanged.
A data room is an online repository of important documents about a company.
Online data rooms are frequently used in connection with M&A transactions, to facilitate the extensive due diligence process typically undertaken by buyers.
Data Room:
The online data room is populated with the selling company’s important documents: contracts, intellectual property information, employment agreements, financial statements, a capitalization table, and much more.
The online data room allows the selling company to provide valuable information in a controlled manner and in a way to helps preserve confidentiality.
Virtual data rooms are quickly replacing physical data rooms due to their cost efficiency, ease of accessibility, and security measures.
Setting up an online data room early is particularly important and considered best practice in the industry because it prevents problems that may arise later in the due diligence process that can delay or halt a deal.
Some of these problems include: important contracts not executed by one or more parties, Board or stockholder minutes/resolutions missing referenced exhibits, incomplete patent documents, an incomplete or inaccurate capitalization table, and missing stock purchase agreements and related investor rights documents.
An attorney’s thorough review of these documents upon uploading to a data room can avoid these foreseeable problems.
An online data room can be established to allow access to all documents or only to a subset of documents, and only to pre-approved individuals.
A number of online data rooms allow the seller or its investment bankers to review who has been in the data room, how often that party has been in the data room, and the dates of entry into the data room.
Date Room Documents
Preparation of a data room is very time-consuming and must be started as soon as possible in the M&A process.
Failure to have a complete data room ready will slow up or potentially terminate the transaction.
An organized data room is especially important for San Francisco Bay Area or Silicon Valley startups operating in a complex, competitive, and fast-moving market.
You may also want to read Don’t Fear the M&A Disclosures, they are your Friend & Powerful terms you need to know for your M&A LOI. Merger and Acquisition Term Sheet 101
Conclusion:
The Attorneys at Sutter Law have extensive experience setting up data rooms pursuant to both M&A and financing transactions. Contact the Attorneys at Sutter Law today to have a data room set pursuant to the next big M&A deal or corporate financing.
