I'm getting ready to list my manufacturing business next quarter and my broker keeps mentioning a data room. What actually goes in one? I have financials and contracts but not sure where to draw the line. Any guidance appreciated.
Data Room
Setting up a data room for buyers
Your broker should be giving you a checklist. If they aren't, ask for one in writing. Ours had about 60 categories.
Three years of tax returns, P&L, balance sheets. Equipment leases. Customer contracts with term and revenue concentration if you can. Employment agreements and any benefit plans. That's the core.
Don't forget the boring stuff. Articles of incorporation, bylaws, good standing certs. Buyers' lawyers ask for thOse first and it signals you're organized.
How many years of financials should be in there for a company doing about 4M revenue? Our accountant said five but that feels excessive.
Three is standard for most deals that size. Five won't hurt if they're clean but if there was a bad year in there it invites questions you may not want early on.
We used a service for ours. Cost about 2k and it handled permissions and audit logging. Worth it because I could see exactly which buyers spent time on which files.
That last point matters more than peop le think. We learned one buyer never opened the customer contracts, told us a lot before we wasted time on their offer.
Agreed on permissions. Stage it too. Don't dump everything in at once. General info first, deeper diligence after an LOI. Keeps tire kickers from seeing your full customer list.
This. A competitor posed as a buyer with us once. Wouldn't have known if we hadn't tiered access.
On the flip sidee, putting too little in can stall things. Had a deal where seller held back vendor contracts for two weeks and buyer's lawyer got suspicious about nothing.
Naming convention. Please name your files sensibly. I've seen rooms where everything was scan_0001.pdf. Buyers notice and it slows diligence.
What about employee info? I don't want to share names and salaries with every buyer who clicks a link.
Redact names. Provide roles and compensation ranges. Full detail only after LOI and even then get a signed confidentiality agreement with a reasonable term.
Make sure the NDA actually says what happens to data after the deal dies. We had a buyer keep our files for eighteen months past close of talks. Not much we could do.