Negotiating business deals like mergers and acquisitions (M&A) is a tedious process. You need to review tons of documents from the initial review and due diligence to the signing of contracts and company integration. However, there are new technologies specifically designed to facilitate the process like Virtual Data Rooms (VDRs).

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M&A activities in the United States have been very robust and show no signs of slowing down in 2019 due to factors like the increasing cash reserves of companies and a more relaxed regulatory climate. Based on the data from the Institute for Mergers, Acquisitions, and Alliances, M&A transactions posted a compound annual growth rate of 5.86% and 5.32% growth in terms of value from 1985 to 2018. This article discusses how to negotiate an M&A deal through the use of VDRs.

What Are Virtual Data Rooms in M&A?

VDRs are online depositories used for keeping documents, which can be accessed and reviewed by potential bidders in business transactions like M&A, loan syndication, and venture capital. The vendor will provide a secure log-in authorization, which can be deactivated anytime if the bidder withdraws. The use of VDRs in deal negotiations is continuously growing due to positive factors like accessibility, safety, and cost-saving. VDR vendors are also claiming that VDRs reduce the bidding process by around 30 days compared to physical data rooms.

The effectiveness of VDRs, however, depends on their features. You should carefully examine the capabilities and features of a VDR platform when choosing one. You should also select a VDR from a reputable vendor to ensure product quality and service reliability. Here are some of the features of a good VDR platform:

  • Security of data access
  • Reasonable price
  • Data management capabilities
  • Digital rights management
  • Branding and customization capability
  • Compatibility with other business software
  • Functionalities like alert and notification features

Use VDR’s and Successfully Negotiate M&A Deals

Business negotiations are a tedious process that needs patience, due diligence, and diplomacy to succeed. Similar to real-life situations, around 50% of M&As fail, but a higher percentage would end successfully with the right strategy. Here are some tips on how to negotiate an M&A transaction successfully:

  • Propose an initial offer – In this stage, you should present the conditions where the negotiation will revolve. It is very crucial to leave some bargaining room when making an offer. You should also practice good diplomacy to establish goodwill at the negotiating table. Through the use of new technologies like VDRs, the bargaining process can be facilitated and ease some pressure that comes with it.
  • Focus on negotiating the terms of the deal – During the negotiation process, you should aim to create conditions that are agreeable to both sides. If you are the seller, ensure that the business information you provided is accurate. Use a VDR to facilitate access of potential buyers to your documents.
  • Discuss the personnel issues – Focus also on the fate of the employees during the bargaining talks to ensure that the acquired company continues to operate smoothly. As a buyer, you can also present your plans for your future employees to ease their fears and doubts. You can use VDR’s for transparency purposes.
  • Conclude the deal by signing a contract – After all the issues are ironed out, prepare an agreement to be approved by both parties. Both parties should also plan the integration together.

Successful business transactions depend on the ability, commitment, and reasonableness of the parties during the negotiation process.

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