Effective data management is essential to ensure a highly effective offering process.
I have watched brokers fumble around looking for files and being clearly uncertain which version is the most current version. Then they respond to buyers with emails with confidential information being sent all over the place, including to recipients that they do not even know.
This is YOUR information and it must be treated with complete confidentiality and security.
I am going to share firm practices here. It will help illuminate sellers on how to set and expect standards of excellence throughout this process. It may help brokers avoid missteps in the future and I am fine with that.
Phase 1
All emails must start with the client's business name at the beginning of the subject line regardless of who originates the email. This facilitates effective searching and sorting. There are usually over 1,000 emails per transaction so this basic level of diligence assists everyone.
NO FILES EVER SENT BY EMAIL. First, you can never be certain that the email was actually received and/or opened. Second, it should be assumed that there is no security within the email systems.
Fumbling brokers many times do not even detach, index or file submitted documents received by email. Then they use the email search function to find documents back. This no security process is embarrassing to watch and incredibly frustrating for buyers.
Phase 2
File structure – all document file names should have a suffix of YYMMDD.
- 260603 for June 3
- 260602 for June 1
- 260601 for June 1
The computer will always sort in this date format from oldest to newest. This guarantees that if you have 15 versions of a document that the most contemporary (one to rely on and represent) will always be in the first position in the sort.
Phase 3
If your advisor does not get files via email, how should they get them? With confidentiality, precision and a full audit trail. This is where the due diligence digital data room comes in.
I think the very best digital data room is Caplinked. It provides full document and communication control and provides world class security.
It operates on a folder and index system that is far superior to Drop Box and Google Drive and other systems that are primarily storage systems.
Caplinked has administrators and well-defined purpose oriented user groups.
A strong M&A advisor should offer this service for their clients and never charge for it.
I sold a tech company to a 44-billion-dollar PE group. They provided a due diligence listing of 150 separate topics. I had 150 folders indexed and operational in two hours. They were highly impressed and this straight-line communication eliminated many emails and calls.
Folders are established for internal communication and external communication.
I start with a client upload folder. This is where my client uploads every document that was requested or that they suggest sharing. This is a staging (suspense/clearing) folder. Every single document is assessed, indexed and renamed, if necessary. The documents are then advanced to an external buyer folder or an internal data bank folder. This upload folder is cleared every day and all incoming information is logged in via the diligence tracking matrix.
At all times it is crystal clear what has earned external release, what is a work in process and what has not achieved its first submission.
Does this give you a sense for its precision and time effectiveness?
Then buyer groups are set up in the digital data room. An invitation is issued by the M&A advisor to the approved buyers, lenders and other approved participants on the buyer's team.
It is easy and effective to set up a buy team group for each group of buyers. This may be 15 separate groups upon initial setup. This allows for sharing of common information and at the same time facilitates partitioning of information that is buyer unique. As buyers initiate questions their questions and seller responses must be isolated to the correct recipients only.
How many times have you seen important information go to the wrong people on an email thread? Imagine sending an LOI to the wrong buyer. Those types of blatant mistakes just cannot happen.
The data is completely locked down and partitioned within Caplinked. Only the M&A advisor can allow access to participants.
A buyer opens their primary folder and then they may see 40 subfolders with names indexed to match the 40-item due diligence listing that they submitted. Then they open each subfolder and see exactly what they requested. If they asked for 10 things in folder 17 and only 14 are ready, I put a placeholder in the three that are incomplete stating that they are not complete yet. The buyer never has to wonder whether a request was overlooked or if there is no data available for that request.
Then there is my favorite feature of all. Let's say the buyer requested 300 items and 250 are complete and loaded. Now I have the next ten. When I load those ten into the system the buyer receives a system generated email indicating the exact ten items that were just added with the file and folder information and a date and time stamp.
It is absolutely brilliant execution with a full audit trail.
The process provides:
- Confidentiality
- Document Control and Indexing
- Access control
- Tremendous Time Management
- Communication Clarity
The goal of due diligence is to proudly represent the accomplishments and the value attributes of the company.
This tool allows for an A game for all participants!