How to use h1 Virtual Data Room?
A few days ago we posted a poll on LinkedIN, asking how many of our LI-connections had used a Virtual Data Room (VDR). So far the most surprising result is that 23% had no idea what a Virtual Data Room is. So, I thought it would make sense to briefly go through this – and also add a few thoughts to how h1.io VDRs are best being used in practise. SO … here we go:
A VDR is typically used in transactions such as mergers and acquisitions, private equity deals, and initial public offerings. The use of a VDR ensures that all parties involved have access to the same information and can securely communicate with each other.
So, great – someone has shown interest in potentially acquiring your business. Perhaps you’ve already signed some initial non-binding letter of interest (LOI or similar document) and next step is initiating the due diligence phase.
Due diligence (DD) is an investigative process that a business often undertakes to protect itself from potential legal liabilities. The process usually involves a review of a company’s contracts, as well as a review of both public facing data and any other information that could be relevant to potential legal claims. Additionally, the process may also include interviews with employees, customers and other third parties. In its essence it’s a way for a potential buyer to go through all the important seller-metrics to ensure that there are no skeletons in the closets and that everything is – more or less – the way the seller presented their business pre-LOI. It’s they key part of any process and effectively where the deal is done…or not.
When you sign into h1.io VDR for the first time you will see two folders. We call them VDR Internal and VDR External.
You can change/delete/add folders at any time, this is just our suggested guideline structure. Those two folders are mirrored and the idea is that you keep access to the internal to your own team members.
You can completely populate the folders with all the relevant documents and then copy them over to the VDR external folder as needed or requested by the potential buyer. It’s a very easy way to ensure that no files are shared by mistake and that you have a safe check-out process and fail proof methodology.
When you invite external users you can define their roles. Say, you’d like a buyer to be able to view a file, perhaps even print said file – but not download it, then you can specify that on a folder-by-folder basis, or even file-by-file. h1.io supports all popular file types.
When uploaded to our platform they are converted into secure PDF files – and you can add watermarks to make unintended sharing even harder.
After sharing files you can keep an eye on the activity level of the potential buyer. What files are being opened, and by who? Like, if some of your cashflow analysis files are being scrutinised (downloaded, viewed, printed by more than one external user) then you can most likely expect a bunch of questions coming up on the topic.
Also, as a general note, the more activity – ie. ‘work’ – that the buyer is putting into the process, the more likely the deal is to close as a whole. Work=Time=Money for the buyer, and the more money buyers invest into the DD process the higher the chance of a succesful deal.
At the time of closing the deal, you may need to have a set of documents that everyone agrees to being the truth. Typically this is what seller reps and warrenties are set against. You may even have parts of the purchase sum held in an escrow for a number of months/years – and if any of the ‘truths’ put in the data room during DD turns out to be less than true, then you may have potential losses deducted from the purchase sum, and taken from the escrow. At h1 you can ‘freeze’ the dataroom and set everyone as ‘viewers’ only until a potential reps and warrenties period has ended and any escrows are released. It’s a failsafe way to ensure this process to run as smooth as possible.
So, hope this helps – and please ping us if you’ve got questions to above….or if you need help getting your deal across the line :)