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Making the VDR a Seller’s Strength

In Deal Note® 38, issued back in 2022, we briefly mentioned the role of Virtual Data Rooms (“VDR”). In today’s Deal Note® we want to delve deeper into the subject of VDRs and how you can use them to your advantage when selling your middle market aerospace and defense company.

The term “Virtual Data Room” is derived from the fact that years ago, technologies did not exist to enable the collection, distribution, and secure tracking of due diligence files. Accordingly, sellers prepared printed documents in binders or file cabinets and invited qualified buyers to physically enter these rooms on an escorted basis and allowed them the opportunity to review files and selectively make copies, when said activities were properly documented. These physical rooms were referred to as the “Data Rooms”. As communication technologies evolved, these Data Rooms evolved into “Virtual Data Rooms”.

While technology has changed how buyers access due diligence files, the approach to “Data Rooms” has changed very little over the years, as it relates to best practices for successfully selling middle market aerospace and defense companies. The key to a good sale process and a great data room is one single factor:

Disclose everything material (good and bad) before the buyers gain access to your Data Room.

While that may seem counterintuitive, it is the proven approach. For 23 years this has been our approach, and it has proven itself to be the best approach, time and time again, without fail. Give the buyers all material information early in the sale process and long before they gain access to your Data Room. In so doing, you take negotiating leverage away from the buyers. You take away their ability to “find things in due diligence” that give them arguments for lowering the price.

It takes a lot of preparation and hard work to run a sale process in which all material information (good and bad) has been optimally disclosed before buyers gain access to your Data Room. But in our experience, it is the only way to ensure a great outcome for you, the seller, every time.

Have a great day everyone,

Bill Alderman
Founding Partner