London and St. Paul, MN – Two-thirds of European dealmakers believe that the number of parties conducting due diligence on M&A transactions has increased by an average of 24% due to the emergence of Virtual Data Rooms (VDRs) in Europe, according to new research from mergermarket, commissioned by Merrill DataSite®,the acknowledged leading global provider of virtual data rooms (VDRs).1
Merrill DataSite®’s research shows that the average number of bidders at due diligence stage on a European M&A transaction now stands at six, collectively spending over 2,316 hours studying documentation.2
According to the research, conducted amongst executives in the UK, France, Germany, Sweden and the Netherlands from the financial, legal, corporate and private equity spheres, almost a fifth (19%) said that they had seen the number of bidders increase by up to 50% compared to the number involved when due diligence is carried out through a traditional, physical data room.
Merlin Piscitelli, Director at Merrill DataSite®, said: “Tough market conditions mean there is more pressure than ever to get the due diligence process right for both the buy-side and the sell-side,” said Piscitelli. “VDRs enable the sell-side to attract more potential bidders and also spot the time-wasters from those who are serious; and they enable the buy-side to investigate more thoroughly without having to spend time and money travelling to a physical deal room.”
Moreover, the study also shows that due diligence is having a more significant impact on deal outcomes with one in five (21%) deals now failing because of issues arising during the due diligence process. Executives believe that adverse market conditions are creating obstacles to successfully closing deals and are looking for ways to address this problem. For example, nearly three-quarters (73%) of executives believe that the credit crunch has resulted in more extensive analysis and longer due diligence cycles – causing critical delays in deal time.
The significance of VDRs in deal making has therefore increased, as they provide the means to not only attract multiple bidders to conduct parallel due diligence efforts, but also minimise the elapsed time for the process to take place. Of those people surveyed who had used VDRs before, half thought that using one reduced the time required for due diligence by more than 30%, and one in ten thought it compressed the time by more than 50%.
Piscitelli said: “Delays in the deal cycle can dramatically impact companies’ ability to react quickly in today’s uncertain market environment. Working via a virtual data room is a valuable way to prevent delays and keep the deal on track.”
Spotting the time wasters
Besides saving time, virtual data rooms enable the hosting party to actively monitor the bidders’ viewing activities such as which documents are being accessed, how frequently and for how long. As a result, the host is able to see which parties are committed to the deal compared to those who are just “testing the water.” Nearly three-quarters (73%) of respondents said that they had found the VDR useful or very useful for assessing this aspect of the deal.
Increasing the chances of a successful deal
VDR market acceptance has grown rapidly since it was first introduced to the marketplace six years ago. Merrill DataSite®’s own data suggests that as much as 40% of the market has already adopted the technology. Additionally, 87% of those surveyed said they would consider using a VDR on M&A sell-side due diligence and almost half believe that using a VDR increases the chances of a successful deal.
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1 Research conducted by mergermarket of executives in the UK, France, Germany, Sweden and the Netherlands from the financial, legal, corporate and private equity spheres. A total of 13,324 global deals were announced or completed in the 12 months from June 2007 to June 2008.
2 Data from Merrill DataSite®
3 Data from mergermarket
Patrick Evans / Peter Marcus - Citigate Dewe Rogerson
Tel: +44 20 7282 2913
Merlin Piscitelli - Director, Merrill DataSite®
Tel: +44 917 761438
