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Q.: Has the due diligence process changed since the credit crisis?
Mr. Porzio: Yes and no. From our perspective, we've seen the average length of the due diligence process remain fairly constant at just over six months. There has, however, been increased variability in the time it takes to get deals done and the amount of effort required. In some cases, things are moving faster than ever with deals closing in three months with more limited amounts of information being shared among smaller groups of select bidders. Other deals, though, are taking longer particularly in highly regulated industries such as healthcare, financial services and energy. Also, over the last 12 months, the number of bidder groups and team members for each bidder has increased by almost 40%, illustrating that more people are reviewing more information compared to similar deals a few years ago.
Q.: What are the key challenges to conducting due diligence in a cross-border transaction?
Mr. Porzio: Cross border activity has been increasing especially in the emerging markets, where companies are active as both buyers and sellers. Perhaps the biggest challenge around cross border deals is the additional time and complexity related to them. Visibility is another key concern as many sellers don't know the international bidders that well and often don't know who is genuinely interested in making a deal. But there are companies that overcome these challenges. For example, we've worked with DuPont for years and they have institutionalized the process of leveraging our technology to manage their cross border deals to gain efficiencies and comfort on both the sellside and buyside.
Q.: In your experience is there a difference in the way a strategic buyer versus a financial buyer manage their due diligence process?
Mr. Porzio: In the end, everyone has an expectation of similar information, although this can differ greatly by industry. One noticeable difference is that strategic buyers, especially the well-oiled machines of serial acquirers, focus first on planning/strategy content, IP and customer data to determine the fit. Financial sponsors tend to go deep into the financials and financial driver data, presumably for the quicker go/no go decision based on a refined modeling exercise. There is also a contrast in sellside processes run by financial and strategic sellers and how they tend to flow and share information with the other side.

We have seen an increase in Private Equity driven and controlled deals, where demand to close now to maximize value and avoid an unknown future has increased pressure on sponsors. They, in turn, push portfolio company management to prepare earlier and leverage technology to reach the right bidders and move the process along in a compressed diligence process or to look at alternatives like an IPO more quickly.
Q.: What is the nature of risks faced in the emerging markets transactions?
Mr. Porzio: Emerging market due diligence when it comes to cross border deals is becoming increasingly intense. The buyside has told me that assessing the validity and consistency of information has always been a challenge on small, private emerging market deals. Familiarity and trust are always important but flexibility is becoming increasingly relevant to getting deals done. Buyers and sellers alike are no longer willing to take on the risk to secure first mover advantage or maximize interest.
Q.: How are private equity buyers approaching their emerging markets transactions?
Mr. Porzio: : Private equity buyers often worry about local regulatory requirements as well as the challenges in managing the asset going forward. They are leveraging more experts earlier in the diligence process to not only determine value but also examine potential pitfalls. Also, buyers appreciate virtual data rooms like IntraLinks for leveling the playing field by allowing numerous experts to engage in the process with less upfront cost and they are able to examine the data faster to identify potential red flags.
Q.: What about the sellers approach to due diligence in the emerging markets?
Mr. Porzio: Sellers from emerging markets are anticipating the concerns of dispersed bidders in order to negate the "it's just not worth the time and risk' block from the buyside. Advisors to the sellers are proactively helping to gain the trust of foreign bidders by being more organized and communicate complete information. Recently, we had a Brazilian client that was thinking of a targeted process, staying local with one buyer - a negotiated sale all the way, but their banker urged them to have a plan B. Eventually they sold to a European buyer because they were ready to quickly pivot and take advantage of last minute interest.
Q.: For the sellers, what are the essential considerations for providing critical and often confidential information during the bidding process?
Mr. Porzio: It is really about balancing an appropriate amount of information while not overexposing a company's most sensitive information when you're unsure of your bidders' true intentions. There can even be some tensions among sellside management, outside counsel and their bankers. Although bankers understand the concerns about the confidentiality of the process as a whole, they often push the envelope to keep the buyers engaged, giving them the information they request and when they want it. Companies want to be assured that the system in general is secure, only trusted personnel under NDA are involved in the deal, and that specific information can be tracked and locked down.
Q.: How do virtual data room's help the seller manage the process and give them the comfort of confidentiality?
Mr. Porzio: During my banking days, I saw bidder groups run into each other in physical datarooms and people sharing DVDs of data with unauthorized parties. Despite the best efforts and security, confidential information can be misplaced or removed from a physical dataroom. With IntraLinks' VDRs, access controls restrict who can see what documents and when. Permissions can be set up based on any level of granularity, depending on the stage of the deal or buyer type. Advanced security features ensure that there isn't any unauthorized printing, copying or downloading of documents. Sellers also have insight into which documents have been reviewed by whom, enabling them to make better decisions on whom to focus on. Additionally, audit trails track access, virtually eliminates untraceable information leaks, reduces compliance risks, and protects millions in value during negotiations as bidders can't make a false claim that "we didn't know that, and that makes all the difference in our final bid".
Q.: How would you characterize the use of virtual datarooms with traditional forms of due diligence?
Mr. Porzio: Virtual datarooms are now the standard and have grown exponentially since we pioneered the concept in 2000. A physical dataroom is almost always more costly, takes longer and introduces greater risk. Physical datarooms take weeks to prepare and assemble documents into binders and supplemental information must be provided via email or Fedex. As an example, instead of copying paper and filling banker's boxes, seller team can just drag and drop documents into a VDR, securing them and grant bidder teams immediate access. Most of all VDRs shorten deal cycle by as much as 50% and can reduce cost of doing due diligence by 65%.
Q.: Specifically, how do virtual data rooms affect the auction process?
Mr. Porzio: With immediate, simultaneous access to documents, the buyer remains more engaged, conducting due diligence without the time constraints and additional travel expenses. Even when deals look like they're only going to have one logical buyer, the commitment of resources is still significant. If or when these deals turn into auctions, as they often do, deal teams want the options and know that VDRs ensure the quickest on-boarding of a new crop of potential buyers.
Q.: How does IntraLinks build features to keep abreast of the fast changing M&A environment?
Mr. Porzio: We are an innovative company with a history of focus and expertise in M&A. I came from investment banking eight years ago and a number of my colleagues were bankers, corporate development officers, private equity professionals or lawyers - this gives us great insight on what dealmakers need. We don't, though, rest on our past experiences. Our entire team is engaged and we get constant inputs and ideas from clients and users. More simply put, we listen. A great example of this was the development of IntraLinks Designer, which put the fastest, highest capacity and most intuitive dataroom creation tool directly in the hands of our clients, accelerating their deals to market.
Q.: On a personal note, what book are you currently reading?
Mr. Porzio: I'm re-reading Moneyball by Michael Lewis. When I first read the book, it was as a baseball fan but I'm now looking at it from a different perspective - as a business strategy text. While I have always agreed with the assertion that superior information can make one competitive in the absence of many other advantages, the book has reaffirmed for me the basic principle that taking a calculated risk and challenging industry norms can be truly game changing.

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