The Process of M&A & the Importance of Having a VDR During the Process

You may have noticed that nearly every virtual data room (VDR) is designed and created to be used in Mergers and Acquisitions (M&A), among other uses in a variety of industries. From the Buy and Sell Sides of M&A, along with Post Merger uses, virtual data rooms are commonly utilized for this purpose, and if you are new to VDRs or M&A, it is crucial that you know why it is so important to have a virtual data room for use during Mergers & Acquisitions.

If you are a business owner who is either contemplating a liquidity event for your company (or you are educating yourself in the event that you may need to sell in the future), the process of selling one’s company can be very daunting. There is a ton to do including hiring an investment bank to negotiate a sale. Overall, the entire process is overwhelming — but it doesn’t have to be if you break down the process and understand the steps.

Selling a Business

Once a business or company has decided that it is time to sell, the first question an owner asks themselves is: how do I sell it? Naturally. For small businesses that have one location or less than a couple of million in revenue, the owner could potentially sell the business on their own. Or, as a small business, a business broker could be enough.

However, for larger companies, the selling of a company is a horse of a different color. The services of an investment bank are typically needed in order to ensure that a large number of potential buyers can be considered and that the selling process can be competitive.

Let’s go over the process of selling one’s company and the importance of having a virtual data room.

Choosing an Investment Bank

For the process of Mergers & Acquisitions, confidentiality is extremely important. Using an investment bank that has a great history of confidentiality is the best best. Try reaching out through a trusted lawyer or law firm. Why is confidentiality important?

Well, news of an impending sale can severely disrupt employees at a company, can affect stocks (if applicable), and can cause issues in the M&A process if the information is too widely divulged.

Find an investment bank that has experience selling companies that are within your industry and are familiar with potential buyers — it’s like an auction — you want to go with an auction house that can get in the right buyers in a room (so to speak) for a better chance at selling your company at a higher price.

As a part of their pitch to win your services, an investment bank will typically offer a valuation of your company. Now, be wary of any banks that seem to be providing valuations that are much higher than others — this may stroke your ego or get you excited, but valuation does not mean that the bank will be able to sell it at that price or deliver a better service. Realistic banks are a much better bet.

Also, don’t forget about fees — 1 to 1 percent of the total sales price of a company is standard, depending on the expected size of the transaction. Smaller companies will usually be asked to pay a minimum fee in order for a bank to consider working on their transaction.

VDRs are important to the process coming up — when it comes to confidentiality, uploading documents and files, getting potential buyers interested, etc… it is important to have a virtual data room that is secure, easily accessible to potential buyers, easy to upload all of the relevant documents, and perfect for keeping everything organized and in the end, appropriate for making the final monetary transaction.

Remember, in most cases, when buying a company, it is not only money that changes hands. Intellectual property rights, manufacturing rights, and a lot more are also purchased as a part of the deal. This means a lot of paperwork, need for secure online storage, and a crucial need for safety when the transaction is finally done.

Due Diligence

Once you have chosen an investment bank, due diligence must begin. The bank basically sets up a meeting a your company HQ in with key members of management. It is important that the confidential process of M&A is stressed to employees — since they will be made of the potential sale, they could cause panic in the company if they tell everyone.

It is therefore pretty common for companies to set up incentives for senior employees who are involved in the transaction — this is so the process runs smoothly — after all, it is likely they will be without a job when the company sells. You want to make sure they are cooperative.

There is a due diligence checklist that the investment bank will likely go through, so that all company-related issues are covered for potential buyers.

Due diligence typically includes:

  • Tour of company
  • Discussion of legal issues (potential litigation, questions about company operations, intellectual property rights or manufacturing, etc…)

The company is then asked to provide monthly financial statements every month during the selling process so that potential buyers have the latest financial information.

Confidential Information Memorandum

At this point, the investment bank will use all of the information they gather during due diligence in order to prepare what is called a confidential information memorandum (CIM).

The memorandum is essentially the primary sales document used to market your company to potential buyers. The CIM is similar to a detailed business plan. It includes everything from:

  • Bios of the company’s key management
  • How the company operates
  • Description of any legal concerns that may exist
  • The historical financial performance of the company
  • Pictures and charts to convey the value of the company

In addition to the memorandum, the bank will also prepare a one-pager document that describes the company on a no-name basis. It’s like an anonymous cover letter with all of the necessary information at a one-page glance without the name of the company. This helps to gauge buyer interest prior to providing the entire CIM.

Buyers List

While the process of due diligence is going on, the investment bank will take the time to consult with the company for the purpose of developing a buyers list. You can’t sell a company by simply listing it somewhere and the best way to sell is to be proactive and approach the appropriate buyers themselves. Again, think of an auction house — to get the best bid possible, you would want an auction house to advertise the product, get all of the big buyers in a room (who are serious and interested), and let them compete for your company.

Certain potential buyers may be excluded from your list for competitive reasons. If a huge or innovative company is being sold, the M&A process could divulge intimate details about a company, and if another business is not being honest about wanting to buy your company, this knowledge could weaken the company’s advantage of the competition.

Now, once a list of potential buyers is complete, it is time for the bank to start making calls and reaching out to investors. They will email the one-pager summary so all buyers have more information on the company before speaking with them to gauge their interest in acquisition.

If the bank ends up with one or more buyers that are still interested in purchasing your company, they will at that time, ask them to sign an NDA (non-disclosure agreement). This means that the bank can now give them the name of the company that’s for sale and give them the information memorandum.

Potential buyers are contacted over a course of days and the bank will take note of the conversations with each. This will determine which buyers are interested still, which decline, and which ones are on the fence.

At this point, the investment bank will send out copies of the memorandum to buyers have signed an NDA and are still interested in buying. Included is a letter describing a timeline for the sales process. Buyers are given a few weeks to assess the CIM (memorandum with all of the company information) before submitting an indication of interest.

Letters of Intent

An LOI (Letter of Intent) is a non-binding letter from potential buyers that discuss how much they are willing to pay for the company being sold, how the purchase will be financed, and a description of their experiences with making acquisitions (if they have any). This is essentially somebody putting in a bid and explaining how they will accomplish the financial side.

Even if a buyer offers a high price, it doesn’t mean they are the best buyer. Remember, buyers may not be able to close the transaction if they can’t secure financing. This is why it is important that they include in their LOI how they intend to accomplish payment.

Once all of the Letters of Intent are collected, a smaller group of potential investors are selected to move on in the process. This increases competitiveness and an investment bank can apply pressure on the buyers to offer their highest price and maximize the value for your company.

The Importance of Virtual Data Rooms

The remaining buyers that have been chosen throughout this process — this may be two or three, depending on your specific business — are then invited to visit the company’s virtual data room (VDR).

Virtual data rooms are typically cloud-based these days, which gives everyone involved instant, global access to all of the detailed and sensitive information on the company. Each potential buyer will be given specific access (which can be controlled) so that they can view and analyze as they make their decision and pick a number to offer up.

Data rooms allow for documents to be created and/or scanned and uploaded onto the secure, virtual website for these buyers to access from anywhere in the world, at any time.

What is especially great about VDRs is that it is a huge benefit for your company and the bank to gauge interest by the different potential buyers. The VDRs offer additional insights into the M&A process because you will be able to see which files have been viewed by which potential buyers, including how often and when. This information is crucial to get a good indication of how certain buyers are in terms of thoughtfulness and seriousness in making a transaction. This is analysis is priceless.

At this time, buyers are invited to submit final bids and are usually pressed by the investment bank you hired, to up their offer to stay competitive — this can work especially well to potential buyers that you have seen (through analysis via the VDR) view the files on the company extensively.


A buyer is finally selected and the terms of the deal are finalized. The runner up is often told that the company is still considering offers (this is because the winning bidder may not be able to close the transaction, agree to the terms, or otherwise able to seal the deal). It is always important to have someone else in consideration in case the selected buyer falls through.

Remember, the winning bidder is not always the buyer with the highest offer. A winning bidder will have a combination of a high offer and a high likelihood of completing the transaction, which is the better deal in the end.

Once the major financial terms of a merger are agreed to, the closing process is turned over to lawyers of the two companies: the company selling and the company buying. They will be the ones to hammer out a purchase agreement, which is signed by both companies completing the sale.

After the Wire

In a confidential M&A process, only the management team of the selling company, a few potential buyers, their legal and financial advisors, and the investment bank are aware of a sale of your company.

A press release will announce the sale of the company and inform employees of the company before the news is made public.

The entire process of M&A can last as fast as six months or can take over a year.


Virtual data rooms (VDRs) are incredibly important when it comes to transactions as a part of M&A. VDRs are the perfect place to store and share sensitive documents on a company as well as complete the transaction process when selling and buying a company.

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