Setting up a Data Room During Acquisitions (M&A)

Data rooms are critical in M&A due diligence. Both buyers and sellers will share a data room to share files.

In M&A, data rooms are critical from both the buy-side and sell-side during the due diligence of an acquisition. Data rooms allow both parties to organize data to ensure everyone on the M&A team has access to the documents, images, and spreadsheets when they need it.

In this guide, I will break down what a data room is, why it’s needed during due diligence, important features, and which platforms I recommend.

What is a Data Room During Acquisitions?

In short, a data room is an online platform where interested parties can share files and information. A data room has access control to ensure specific parties have access to specific data.

For example, if you are a buyer looking to acquire a competitor, you can give your HR team access to files only related to employees, whereas your executives have access to all files. It would be bad practice for everyone to have access to all files.

4 Critical Components to a Data Room

There are a few critical components that all data rooms should have:

  1. Ability to upload files related to the acquisition. Files can be PDFs, documents, images, spreadsheets, zip files, among others. It should be able to handle all types of files.
  2. Ability to give access to specific people to specific folders/files. You want to be able to triage people and control who has access to what.
  3. Ability to leave comments for each party to simplify communication
  4. Keep a historical timestamped record of who made changes and when

My Recommendations: Google Drive or Dropbox for 99% of Cases

There are plenty of paid dataroom services out there.

However, most are overkill for typical online business acquisitions sub $20M. This is because most of these businesses have a few critical personnel, are run mostly by outsourced contractors, have limited documents, and do not have many legal documents.

The best options are Google Drive and Dropbox.

Both platforms are able to perform the critical components discussed. You can upload any file, files are available to anyone that has given share access, you can triage people to specific files, comments can be left on each individual file, and historical records are kept of who made changes.

M&A does not need to be complicated. At times, it’s best to step back and check what do I really need. At times, the simplest solution of Google Drive and/or Dropbox can solve the problem.

Actionable Takeaways

  1. A data room is a critical aspect when performing due diligence during an acquisition. It is a folder-based system to share critical files needed for due diligence.
  2. A data room is a virtual platform where certain parties (who’ve been given access) can upload, remove, and change files
  3. A data room does not need to be complicated. Google Drive or Dropbox are acceptable platforms to use
  4. You may a need a more secure and privacy-focused dataroom platform if you are dealing with private identifying information (e.g., employee SSNs, customer private data).

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Mushfiq Sarker

Mushfiq is the founder and lead advisor at WebAcquistion M&A firm. He has actively transacted on 218+ website acquisitions since 2008. His expertise is in due diligence of content, Amazon, eCommerce, and SaaS businesses.