Given the fast-track adoption of digital operations and remote working models post-COVID, are data rooms for M&A transactions still fit for purpose? And to what extent can they be repurposed to meet the wider challenges of the new reality? Choosing the right solution from the right vendor just got trickier.
Our blog series returns after the summer break with a closer look at the future role of the virtual data room.
The future pivotal role of virtual data rooms
Business leaders the world over acknowledge that COVID-19 has merely accelerated a trend already long evident toward digital operations and remote working. But the speed of the transition to the new reality is overwhelming many organizations as IT functions across industries rush to secure their operations and upgrade their capabilities.
A key and long-established tool in M&A transactions, the data room allows the seller to compile documents about the entity up for sale and provide controlled access to prospective buyers so they can conduct their due diligence. All of a sudden, the unprecedented, fast-track adoption of digital operations and remote working models has led many active in the M&A sector to question whether their data room solutions are still fit for purpose.
The final blow to physical data rooms?
Physical data rooms have long been widely superseded by virtual data rooms (VDR). Over the last two decades, the latter have more than proven their advantages, particularly in terms of flexibility, reliability, and also security thanks to advanced end-to-end encryption and the ability to exercise extensive, fine-tuned control over user access rights. The current need for secure remote access in order to accommodate new working models will also land a severe blow to the physical data room and further boost the business case for digital alternatives.
Moving to the cloud
Until recently, VDR solutions were still typically run and controlled out of the offices of the deal-maker (e.g. the lead investment bank or private equity firm supporting the transaction). Some players in the M&A market have now begun to explore cloud-based solutions. These promise benefits in terms of resilience, better cost structures, flexibility, and scalability.
Cloud-based solutions are proving an effective means of streamlining M&A transactions: they accelerate the due diligence process, simplify workflows, and make document management easier. Moreover, advanced digital rights management allows controllers to use a virtual document repository for multiple projects simultaneously, as specific user groups are given permission to browse certain files while others remain hidden. Audit logs also help sellers keep track of all bidders and identify those who are most engaged.
Yet outsourcing to the cloud is not without its challenges. Restrictions on data privacy, issues around data security and integrity, among other concerns, make prospective adopters cautious.
Vendor selection – getting it right
The plethora of VDR options available in the market is admittedly daunting, and there is no one-size-fits-all solution that can cover every M&A transaction. Innumerable aspects and criteria need to be factored into the choice of both the solution and the vendor.
Each deal-maker has to conduct an in-depth comparison of VDR options by reference to key criteria (cost, flexibility, compliance, and many more) in a bid to shortlist feasible options. Once the list of potential vendors is complete, a formal tendering process typically offers a reliable means of identifying the best candidate for the job.
So now we have a vendor. What’s next? In most cases, it is not a good idea, or even possible, to forcibly wedge the new VDR solution into existing processes and structures. Experience shows that successful adopters tend to take the opportunity to thoroughly review and upgrade their M&A operating processes, revise their playbooks, and update their software landscape. And they also make sure they have the right skills and resources to enable seamless remote operations for any type of deal, in any market, and consistent with their current M&A strategy.
Use cases outside M&A
VDRs also offer an interesting value proposition beyond their original M&A use case. Companies across all industries are taking a closer look at VDRs as a means of adapting to new realities and tackling tough challenges such as the ever-rising incidence and sophistication of cyberattacks.
For many, VDRs can provide a means of leapfrogging ahead on their digital transformation journey. More than that, with organizations increasingly forming complex alliances with business partners and rivals alike, VDRs can play a pivotal role in emerging ecosystem-based business models.
With this in mind, Accenture recently announced the launch of Accenture Cloud First, a multi-service group comprising 70,000 cloud professionals. Under the initiative, Accenture plans to invest USD 3 billion over the next three years in efforts to empower its clients to become cloud-first businesses.
Staying ahead of the game
Granted, the pandemic has shaken the nerves of some in the M&A market. According to Harvard Business Review, 51% of the C-level executives and senior corporate development leaders it surveyed anticipate holding back temporarily “until the timing and nature of economic recovery is evident through late 2020.”
That said, the longer-term trend points upward with not just the big players but also smaller businesses beginning to explore M&A as a means of gaining access to new markets and capturing economies of scale. In a recent survey of 1,100 C-suite executives, Accenture Strategy found that 84% of firms had acquired another company in the prior two years, while a third had acquired five or more entities.
In addition, we are seeing some companies coming out of the pandemic in a weakened state and others emerging in good shape – i.e. a constellation that will produce plenty of potential targets on one side of the equation and well-placed buyers on the other side.
Data rooms will therefore prove a pivotal technology in the new reality – in M&A and increasingly beyond. Accenture has the expertise and experience to help players choose and integrate the right solution from the right vendor.