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Virtual Views: The Pros and Cons of Virtual Data Rooms

Performing due diligence in a merger or acquisition has become logistically easier in recent years through the use of virtual data and deal rooms (VDRs). The technology makes a target company's centralized document repository available 24/7 to potential bidders via the Internet. VDRs can provide secure online access to business plans, projections, agreements, presentations, research, inventories and other sensitive information potential buyers need in shaping their offer.

"Time is of the essence, so the faster and further you can cast your net in terms of potential buyers, the more you increase the likelihood of completing a deal sooner," Ellington says.

And while only one bidder can be in a PDR at a time, "With a virtual data room, you can have an unlimited number of potential bidders doing due diligence at the same time, which makes the process so much faster," says Dewey & LeBoeuf Partner Jane Ross.

Brian Cabrera, general counsel of Synopsys Inc., which makes five to eight acquisitions or investments each year, says that although he is an advocate of VDRs, he remains cautious about over-reliance on technology without taking a closer look at a target.

Cabrera once sent an M&A attorney to Europe to size up a potential acquisition in person. "[I wanted to know] how busy they are. How full is the parking lot? How well organized is the office? And, of course, what is in the war room?" he says. The attorney discovered documents in the PDR that had not been included online.

Michael Kozubek

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