Privately held companies that pursue the sale of their company need to be prepared for the complex and time-consuming issues that will arise, and the many material decisions that they will need to make to successfully carry out a transaction. The company’s General Counsel and other in-house counsel will be called upon as key players in ensuring that a smooth and successful sale can occur.

This article discusses a number of the key strategic, negotiating, and diligence considerations involved in the typical sale of a privately held company, and the steps that the company’s in-house counsel can take to better understand, prepare for, and address these considerations and related issues.

1. Online “Virtual” Data Room

An “online data room” or “virtual data room” is an online warehouse of key documents about a company and its business. Online data rooms are frequently used in connection with merger and acquisition (M&A) transactions to facilitate the extensive due diligence process typically undertaken by acquirers. The online data room is populated with the selling company’s important documents, including contracts, intellectual property information, employee and benefits information, customer and supplier information, financial statements, capitalization table, and much more. The online data room allows the selling company to provide valuable information in a controlled manner that helps preserve confidentiality, avoids the need to have a physical data room where the documents must be maintained, and helps streamline and expedite an M&A process.

The access rules that are established with respect to the online data room can allow access to all documents or only to a subset of documents, and only to pre-approved individuals, and can permit or limit the printing or downloading of documents. Most online data rooms also provide the seller, its counsel, and its investment bankers to review who has been in the data room, how often that party has been in the data room, and the dates of entry into the data room, and help the selling company team to better understand what diligence topics are of most interest to the acquirer and its advisors.

Establishing and populating the online data room on a timely basis early in the M&A process is extremely important for a successful M&A transaction. The preparation of a complete data room is a time-consuming task and the involvement and leadership of the in-house counsel for the selling company is critical. In some cases, in-house counsel may already be aware of and have access to the needed documents, but in many cases other knowledgeable key employees will have to be given the responsibility for collecting or creating such documents.

The failure to have a complete data room ready when bidders are seeking to commence or complete their due diligence will slow up or potentially kill an M&A transaction. The online data room should be prepared in conjunction with, and the information therein should be consistent with, the selling company’s disclosure schedules that will be attached to the acquisition agreement. As described below, complete and accurate disclosure schedules are critical to getting an acquisition completed in a successful manner.