The Importance of Building A Data Room

Acquisitions involve a lot of communication and information exchange. To keep track of everything, you need a “data room” – a virtual folder where you and buyers, advisors, and anyone else helping with your acquisition can share critical information. It’s as simple as creating a Google folder, copying your data across, and then granting access.

With a data room, you needn’t worry about losing email attachments or sifting through reams of paperwork to find something a buyer wants. Instead, you upload everything to a virtual workspace that you can share with a link. You then have a single source of the truth for all legal, financial, and operational docs and can see your startup as a prospective buyer would.

But a data room is only as good as the data you put inside it. Don’t leave building your data room until the last minute and risk missing something that delays your acquisition. You might also need to liaise with your CFO and COO to ensure the records are accurate and up-to-date. Start building it now, while you have time to gather everything together.

What to Include in Your Data Room

Marketing Materials

This is everything you or an M&A advisor needs to market your startup. It includes a non-disclosure agreement (NDA), an information memorandum (a legal document outlining the benefits, risks, and conditions of acquiring your startup), a teaser or introduction to your acquisition (a 1-2 page summary introducing your startup to the market), and so on.

Financial and Tax Information

This is one of the most important areas of your data room, so pay it special attention. Include audited statements for at least three years, including current budgets, forecasts, and financial models as well as federal and state tax filings, capital leases, schedules, and any other financial commitments such as inventories, capital expenses, and depreciation.

Legal Documents

Ask your attorney for your digital minute book (a compilation of all legal business records). Also include your company share certificates, resolved legal cases, contracts, intellectual property (patents), and so on. Your startup will come under intense scrutiny during legal and financial due diligence so it makes sense to focus on these areas of your data room first.

Human Resources

Prospective buyers want to know the people who helped your startup become what it is today. Include your employees’ resumes, salaries, pension details, equity percentages, benefits, and performance records. Buyers may use this data to replace lost employees post-acquisition or to tempt them to remain.

Private and Confidential Data

Any ongoing issues material to your startup such as pending legal disputes or industrial action should also go into your data room. How much you share is up to you, and you should only share the most sensitive data upon receipt of a signed NDA, but the law requires you to disclose anything pertinent to the sale. Include pending deals, legal cases, and contract disputes.

Inventory of Assets

Include a list of property and assets along with mortgages, loans, leases, and any environmental or regulatory support. Also include IP documentation such as patents, patent applications, trademarks, copyrights, domain registrations, software licenses, and any contracts outlining proprietary IP. (There is some overlap with legal here but the important thing is that the documents are easy to find.)

General Contracts

General contracts are the glue that binds your operational model together. As a result, the buyer will want to vet these contracts to ensure they’re watertight. Include all joint ventures, vendors, customers, and distributor contracts as well as sales, employment, and credit agreements that prove your business today is built upon solid contractual foundations.

Customer and Vendor Lists

The quality and volume of your customers as well as acquisition and retention plans are critical to any acquisition deal. Include key metrics (demographics, personas, and so on), sales commission plans, reseller information, lists of products and services, and marketing materials. Essentially a list of everyone you do business with and the details of that relationship.

Other Items

Anything else not listed above but that’s still pertinent to your acquisition should also go into your data room. This includes things like government permits and licenses, insurance contracts, and current and past litigation settlements. If you’ve included these things under another category, no problem, you can skip this one.

Data Room Checklist

Below is a simplified checklist that’ll help you create a data room with ease. There’s no right or wrong way to structure your data room, so long as you do so logically and include all the relevant information discussed above.

● Marketing Materials

● Financial and Tax Information

● Legal Documents

● Human Resources

● Private and Confidential Data

● Inventory of Assets

● General Contracts

● Customer and Vendor Lists

● Other Items

Good luck!

By: Sebastian Amieva

World’s most sought-after expert on Mergers & Acquisitions, click out his website here. Also, give him a follow on LinkedIn.

Opinions expressed here by contributors are their own.

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