- Posted on April 24th, 2013 by Laura Fagundes
- Tagged as: acquisitions, document sharing, due diligence, virtual data room
There are many reasons one company acquires another, but at their core, all of these reasons typically have one thing in common: a desire to gain knowledge or information—be it customer data, intellectual property, patented processes or specific team members. That means ensuring that information makes it through the acquisition process intact is paramount.
How to Avoid Information Loss
From Loss of Human Capital
There are two situations where loss of human capital becomes a top priority during an acquisition:
1. The company is being acquired because of the specialized knowledge key team members have.
2. The company is being acquired because the acquirer believes existing management has the knowledge necessary to make the company more successful with additional incentives, capital or oversight.
Yet taking two companies and making them into one is a difficult proposition. Employees often have to sort through competing priorities and demands, and acquisitions often cause a lack of job security that may cause essential team members to begin polishing their resumes.
The best way to avoid loss of essential human capital is to communicate early and often. Employees tend to begin looking at their other options when uncertainty about the company’s future takes root.
However, when employees understand the acquiring company’s intent—whether it’s industry consolidation, vertical integration, entrance into an adjacent market, or even an “acqui-hire”—and whether they plan to accomplish that goal by absorbing the company into the acquirer or simply attaching it and allowing it to function independently, they are far more likely to stick around.
From Loss of Company Data
No one wants to spend large amounts of capital without thoroughly understanding what risks they are taking and what they get for it. That’s why companies go through a through due diligence process.
Yet it is sometimes impossible to share certain company data during the due diligence process and maintain regulatory compliance—and what if key intellectual property, customer data or processes were shared and the deal fell through?
One solution to this problem is hiring a “clean team,” also sometimes called a “clean room.” Regardless of which name is used, it is a third-party who can objectively evaluate information from both companies and begin the integration planning process before the deal is finalized.
Hiring a clean team is particularly important in situations that might otherwise trigger potential civil or criminal antitrust enforcement from The Department of Justice or the Federal Trade Commission. Examples of premature integration activities that might be included in due diligence but that could place a company at risk of legal action include coordinating on prices, contractual terms and assigning customer relationships, writes Howard Samuels, managing director of the Mercator Group, a mergers and acquisitions consulting group.
How A Secure Virtual Data Room Can Help
A secure virtual data room can be a key tool for facilitating use of a clean team and then, later, helping smoothly transfer important data to the acquirer once the deal is done.
Because it allows for remote access, a secure virtual data room provides a safe way to share sensitive data with members of the clean team, allowing them access to information from both companies without the cost of traveling from business to business, lodging and meals—all of which adds up quickly.
Further, since they typically come with permission-based user roles, using a secure virtual data room makes it easy to release that key information to the acquiring company when the time is right; the necessary personnel can simply be granted access without any need to mail, email or fax sensitive data back and forth.
A secure virtual data room can also be used to help keep the lines of communication open with employees. Documents that break down integration plans not only shouldn’t be shared via email due to their sensitive nature, they often can’t be due to their size.
Using a secure virtual data room will help secure that information, ensure that everyone is referencing the same version of documents and the same actual content during meetings and planning sessions. And with a secure virtual data room file size is not an issue.