VDR How does a VDR help minimise risk and increase transaction value in the TMT sector?

The TMT industry is one of the most frequently subjected to M&A processes worldwide. Despite this, technology companies use the Virtual Data Room (VDR) relatively less frequently in these transactions than other industries. In this article, we look at how the Virtual Data Room can help solve the challenges faced by TMT companies in M&A processes, and the benefits of using it.

The technology industry has dominated global M&A rankings for years in terms of the volume of deals conducted. The TMT sector was no different, leading the global M&A market in the second quarter of 2024, according to the Global Data report, with a total of 2,2138 deals worth $166 billion. Three of the top 20 global M&A deals during the period took place in the TMT sector. They were driven by areas such as AI, big data, cloud-computing and IoT.

There are several key reasons for such high M&A activity in this sector:

• The technology industry is characterised by leaps and bounds, making both investors and competing companies keen to acquire innovative startups and scaleups, seeing in them the potential for growth.
• Large and wealthy technology companies often engage in mergers and acquisitions in order to increase their market share and consolidate their position as industry leaders.
• Acquisitions of technology companies can provide access to valuable data and user bases, increasing growth potential in various areas.
• Technology giants often diversify their portfolios through mergers and acquisitions, reducing dependence on their core businesses.

Although M&A processes in the TMT sector involve large transaction values, there are still challenges that require effective management. TMT companies face several key issues:

• Accurate valuation of companies – due to the innovation of the industry, valuation can be difficult as traditional methods are not always precise enough.
• Speed of process – transactions must be carried out efficiently to minimise the costs associated with the process.
• Data security and control – in the process of exchanging information, especially in the technology industry, data protection and control are crucial.

Many TMT companies are coping with these challenges, but using the right tools can dramatically increase the efficiency of transactions. One solution that can help with this process is the Virtual Data Room.

In the TMT sector, many companies use the Virtual Data Room (VDR) as a tool to support M&A processes. However, there is still a group of companies that choose to carry out such transactions without the support of this technology. IT companies, relying on their expertise and advanced tools, often choose to develop their own systems to handle transactions. They believe that their in-house resources will enable them to create effective solutions tailored to their specific business.

This approach is often the result of concerns that hinder the implementation of VDRs in M&A processes. These include:

• Data security – the fear of transferring confidential information to an external platform, particularly in terms of the possibility of leaks or unauthorised access.
• Capabilities of existing systems – the belief that existing in-house technology solutions can fully replace VDR functionality, leading to comparisons of their cost-effectiveness and efficiency against professional external solutions.
• Implementation costs – both financial and organisational, which may seem too high relative to the potential benefits, especially for companies with limited budgets for transaction support tools.
• Reluctance to labour – intensive implementation processes – fear of disruption to day-to-day business operations due to the need to integrate a new system
• Lack of control over the external tool – a sense of limited autonomy in managing data and processes within the VDR, which for technology companies used to building and controlling their own solutions can be a significant barrier.

In short: a VDR offers a secure, efficient and compliance-compliant way to share documentation and conduct transactional communications, which is crucial to the successful completion of an M&A transaction. However, let’s answer the main concerns of TMT companies mentioned above.

Enhanced data security and confidentiality

TMT companies are often concerned about the risks associated with cyber security and the protection of data ownership. These concerns are legitimate, but it is worth noting that the Virtual Data Room (VDR) effectively addresses these concerns rather than exacerbating them. A VDR system, such as Fordata’s, provides 256-bit data encryption and meets international security standards such as ISO certifications. In addition, it uses regular penetration tests and security audits to ensure the highest level of protection. The server rooms where the data is stored are located in the European Economic Area, which means full compliance with the requirements of the Data Protection Regulation (RODO).

VDR systems also offer advanced features such as two-factor authentication, detailed access control and system traffic monitoring. These options ensure that data remains secure and always under the full control of the information owner. The ability to set detailed user permissions allows TMT companies to precisely manage access to sensitive information, eliminating the risk of unauthorised access and data breaches.

A streamlined Due Diligence process

While TMT companies often have sophisticated data management infrastructure, the VDR offers a centralised, easy-to-navigate repository that is specifically designed to meet the requirements of the Due Diligence process. It is a dedicated solution that enables the efficient management of large volumes of information and documents, which is beyond the capabilities of many in-house systems.

From a transaction adviser’s perspective, the adoption of the VDR as a standard tool highlights its key role in accelerating and simplifying the entire process. The widespread use of the VDR in transactional practice confirms its effectiveness. Advisers know how to use the VDR to make the Due Diligence process faster, more organised and less costly.

Effective collaboration and communication

TMT companies are often cautious about new software solutions, fearing that their implementation will require time-consuming changes to internal processes. However, the entry threshold for a VDR is low and implementation is quick and simple. VDR is a SaaS solution that offers an intuitive interface and features, making it an attractive alternative to traditional tools such as FTP servers, SharePoint, Google Drive or Atlassian solutions.

The VDR enhances communication and collaboration with a built-in Q&A module that enables easy exchange of questions and answers between parties. These features make the process of selling or acquiring a company more efficient. A key advantage of the VDR is the ability to conduct Due Diligence online, which significantly increases efficiency compared to traditional methods.

The main benefits of a VDR include:

• Dedicated support team available 24/7 who are well versed in the specifics of the project
• Easy one-click granting and revoking of access to documents
• Activity reports that show who has viewed a particular document, when and for how long
• Track Due Diligence progress and analyse investor intentions based on the documents they have reviewed
• Built-in document anonymisation tools and advanced search functions
• Online document translation functionality, enabling easy international collaboration and eliminating language barriers.

These features make transaction processes faster, more flexible and more accurate, allowing companies to better adapt to rapidly changing market conditions.

Selecting a VDR provider that addresses the specific needs and concerns of TMT companies is crucial to the quality of the proceedings. Our experience allows us to provide personalised support, tailored to the specifics of each transaction, which guarantees effective data management during due diligence, process optimisation and security at every stage of the collaboration.

For TMT companies embarking on M&A transactions, the Virtual Data Room can provide essential support in the document sharing process, ensuring quick access to data, better organisation of the process and precise tools for analysis and valuation of assets.