Who Controls the Data Room?

In any M&A deal there is always a question that arises as to who controls the dataroom. What happens if the seller insists on controlling the data room? Who should have default control over data rooms- the buyer or the seller?

The Argument in favor of Buy-Side Ownership

To answer this question, the element of modern versus traditional M&A comes into play.

Normaly, the buyer has leverage as it is his money that is going to make the deal transaction possible and therefore the buyer has the control. It is but natural, fair and justified for him to lay claim on their process and ensure that it is driven in an efficient and effective way to produce the best results for him. 

It is the buyer who performs the due diligence and experiences the increasing complexity of it. As he gets to integration, it becomes an extremely complex process. It introduces the greatest magnitude of change management the buy-side organization will go through, and he will want to do his best to make that as smooth as possible for himself and his business.

From the buyers-side, he will want to have a process that allows his internal team to not only do the due diligence, but also prepare efficiently for all these diligence activities. Making this operate as smoothly as possible is critical to the success of the deal.

This is not a problem with proprietary deals as you can have that alignment and move through the deal when bankers are less involved.

When the buyer knows he has the control of the deal and that he is going to get paid when it’s closed, he does not care about the methods his buy team is employing internally.

Situations in Which Sellers Want Control

Buyers usually face challenges early in the buying process when it is a bidding process and there is common competition.

In this case, the seller will want to set up and mandate his own data room. Most of the time, the clients are downloading documents and saving them on an internal shared drive. Sometimes, they have their own data room because they’re distributing it with third parties and want to have them on their internal shared drive. 

Obviously, the buyer does not want to track every activity in his seller’s data room. However, once he signs the LOI, he has a chance to gain back control.

This is different from the traditional approach of doing everything spread out across platforms, separate and disparate.

When Should A Buyer Gain Full Control of the Data Room?

A buyer needs to let bankers know that this is his process and therefore all the  benefits will ultimately go to the buyers’ teams.

To get the businesses through due diligence faster, there needs to be that alignment. That’s done by moving over to the buy-side data room once the LOI is signed. The buyer can then interact with his counterparty and any of the third-party teams alongside their internal teams. 

The real thing is when diligence tracking and integration schedules exist together in the same box, iterating at the same time. This allows the buyer to collect diligence information and respond to it while his integration plan develops alongside it.

This creates an opportunity for people doing the diligence to also be involved in the planning of the integration process.

Conclusion

At the end of the M&A deal, it is the buyer that integrates. Integration should ideally be planned alongside diligence to ensure the highest level of value retention. For the success of the deal, it only makes sense for the buy-side team to take over the control of the data room. 

The earlier the integration teams can have access to diligence information as it comes in, the better they can prepare for everything post-close.

If the buyer gives away a lot of control and relies on the seller, it will simply create much more possibility of cultural misalignment and loss of value.