Navigating cross-border M&As: the critical role of data rooms

Data Room & Due Diligence M&A

Address the distinct cultural and regulatory hurdles associated with international mergers and acquisitions through the strategic utilisation of advanced technology and effective tools.

3.October 2023
Written by Mari Nygaard

Before the advent of cloud computing, deals were done very differently. From a seller’s perspective, the volume of documents and data typically collated and shared across the lifecycle of a deal is enormous. Without secure digital technology such as a virtual data room (VDR), the implications of a potential buyer or investor (and their team of advisors) travelling internationally to review, deliberate and negotiate in a physical meeting room would probably have meant a cross-border deal was a non-starter.  

Today, VDRs are commonplace and essential tools for dealmakers everywhere. But, like any software, choosing the right solution is paramount. In the case of cross-border deals, much of this decision-making process relies on functionality and features designed to manage the complex interplay of factors impacting selling, acquiring or merging internationally. 

In this post, we consider the unique challenges of cross-border deals and how the growth of VDR technology helps overcome hurdles to successful outcomes. 

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Today’s cross-border deal challenges

Travelling to a physical room to view hard-copy documents may be consigned to history, but cross-border deals still hold many complexities that technology and VDRs can mitigate.

Cultural diversity

Cross-border M&A deals are especially subject to an intricate web of cultural norms that vary from country to country. The mix of diverse cultural norms can pose a significant hurdle in deal negotiations, as different parties may have contrasting expectations, communication styles, and approaches to business.

Studies estimate that between 50% and 75% of deals fail due to cultural problems in the post-deal integration stage. Many of these deal failures include those between companies operating in the same geographical territory. However, let’s suppose the additional complexities of cross-border factors are overlooked. In that case, the ways of doing business, the approach to negotiation, and other cultural expectations can play havoc with outcomes long before the integration stage. 

For example, parties may enter a negotiation with conflicting beliefs about timelines and deadlines. While time is universal, how it is used and regarded varies hugely according to culture. Western cultures tend to view time as linear in that it has a start and end point and is in limited supply. Therefore, there is an emphasis on meeting deadlines and keeping things moving according to a schedule. Whereas for cultures that treat time as cyclical, processes and tasks take as long as they take, and the emphasis is more on achieving the right outcome than meeting a deadline. 

The implications for a complex cross-border deal negotiation are considerable, and divergences in expectations can lead to unexpected delays or roadblocks that frustrate both parties. 

Language barriers can also slow down or derail negotiations, making open and constructive communication much harder to achieve. Even with translation services available, or where both parties communicate in a common language, substantial differences can still exist in interpretation and meaning.

Working across time zones

The logistical challenges of operating across different time zones can hinder discussions and decision-making timelines. Coordinating meetings, conference calls, and negotiations becomes daunting when dealing with multiple time zones. Decision-making processes can be delayed or disrupted due to the inability to align schedules.

Companies must establish clear guidelines for efficient communication across time zones to reduce the impact. This includes setting regular meeting times, accommodating participants from various regions and leveraging technology tools such as video conferencing to enhance collaboration.

Colleagues brainstorming for a project

VDRs help manage cultural barriers

These cultural norms will influence the timeline of a deal, and both parties must adjust expectations. This is also why VDRs have become vital tools for international dealmakers who need solutions that offer features beyond digital and remote working basics. 

VDRs ensure timely, clear and transparent communication regardless of the territory or time zone and many offer language customisation options, too. Plus, with a single view for every person working on a deal and functionality to manage tasks for each user, progress can be tracked more efficiently to keep expectations on both sides clear and realistic. 

Negotiating parties must build trust as quickly as possible. Still, this can be even more challenging for multinational dealmakers if language or cultural barriers hamper communication. Having information about every part of a transaction stored and documented within a VDR for review at times that suit every team member helps overcome these issues and builds trust between parties. 

By their nature, VDRs are ultra-secure and create transparency between everyone involved. Access to the information is controlled yet always available, and every user sees the same version no matter when they access it. Ultimately, each side of a deal can use the VDR to facilitate communication and view information according to their preferences, time zones and needs. Furthermore, premium VDR solutions include access to 24/7 support to solve technical issues or provide guidance on optimising a data room's use.

Diverse regulatory frameworks

Regulatory diversity adds another layer of complexity to cross-border M&A transactions. Each jurisdiction has its own set of laws, regulations, and compliance requirements that must be adhered to. Navigating these variations can be time-consuming and costly. Differences in data protection laws, for example, can create conflicts in appropriate methods of sharing and transferring sensitive information between the parties involved in a deal.

Moreover, differing regulatory standards may also impact the valuation of assets or companies involved in the transaction. Regulatory hurdles related to European Union (EU) antitrust laws and foreign direct investment regulations can further complicate negotiations and potentially lead to deal failures.

Antitrust rules prohibit agreements between market operators that would restrict competition and the abuse of dominance.
European Commission

To overcome these challenges, meticulous planning is required. Thorough due diligence should encompass financial aspects and understanding of cultural nuances and legal frameworks governing the specific jurisdictions involved. However, technology is not the only consideration; engaging local experts who know local customs and regulations can be invaluable in navigating these complexities.

Read more: Overcoming compliance hurdles in M&As

Data security is more complex

The complexities involved in data exchange during cross-border M&As demand the same robust approach to data security and confidentiality in a domestic deal. However, transferring personal information to a new data processor in a different geographical territory surfaces additional complicating factors.

The General Data Protection Regulation (GDPR) governs how businesses handle personal data, especially regarding cross-border transactions. GDPR, and the UK's post-Brexit equivalent regulation, places strict requirements on the international transfer of personal data to safeguard individuals' rights and privacy.

In a nutshell, the GDPR imposes restrictions on the transfer of personal data outside the EEA, to non-EEA countries or international organisations, to ensure that the level of protection of individuals granted by the GDPR remains the same.

European Data Protection Board

Of course, this means transferring all data - not just lists of customers and suppliers. Personal information held about every employee will also fall under the governance of GDPR. Therefore, ensuring data is always protected during storage and transfer is paramount to avoid non-adherence, which may result in fines and reputational damage.

Demonstrating GDPR adherence, safeguarding trade secrets and protecting confidentiality in cross-border transactions is simplified by the right technological tools. Data encryption technologies, restricted access to sensitive data and enhanced protocols for secure information transfer between entities are fundamental features of a VDR. Ultimately, they empower dealmakers to safeguard data in line with the requirement of international data privacy regulations throughout the deal lifecycle, providing peace of mind to get the deal done safely and legally. 

A staff showcasing her work to her manager

Technical disconnect

Varying tech levels among organisations can significantly impact how M&As progress or are managed. When cross-border teams do not have equal access to resources for managing a deal lifecycle or have a different approach entirely, it can slow down the M&A process.

Teams without a VDR may struggle to stay on track compared to those adopting more advanced technological capabilities. Inevitably, this can lead to miscommunication and delays in critical decision-making.

A 2022 Deloitte survey of 1400 M&A professionals reveals that technology ‘is playing an ever-greater role in improving deal process efficiency and effectiveness.’ In fact, the report predicts that far from being restricted to the process of due diligence, tools such as artificial intelligence (AI) enabled automation, target screening, and cultural integration will expand the impact of dealmaking technology far into the future. 

‘The day may come soon when trying to carry out any part of the M&A or restructuring process in a non-digital, analog way will seem like doing business without electricity. As with everything else about dealmaking, it’s an area in which it will likely pay to get ahead.’
Deloitte: 2023 M&A Trends Survey

It is crucial for organisations involved in M&As to recognise these challenges and proactively address them by investing in robust technical infrastructure and ensuring equal access to necessary tools for all teams involved. Failure to do so can result in prolonged processes, increased costs, and frustrated teams, hindering success in achieving desired outcomes from the merger or acquisition.

How VDRs support cross-border transactions

VDRs and other collaboration tools can be game-changing for international mergers, acquisitions or fundraising rounds. But with so many different solutions available, choosing the right one can be challenging. 

Ensuring your chosen VDR offers sufficient security and customisation is an important starting point for cross-border transactions. Centralised data storage must be protected by enhanced encryption technologies and watertight security features that match the kind of security banks and financial institutions utilise.

For international data transfers and the additional layers of complexity involved, ensuring your VDR will protect data at every step during storage and in transit is critical. Importantly, having confidence the tools used to store and process data are GDPR-compliant is non-negotiable.

Essential VDR security features

  • Two-factor authentication (2FA) or BankID and eID authentication during login
  • Internationally recognised security certifications, such as ISO 27001 and SOC 2 
  • 24/7/365 data security in storage and during transit
  • Regular independent penetration testing to identify security weaknesses

At Admincontrol, our VDRs benefit from these enhanced security features and more. We also ensure the systems and tools we deploy to support your VDR are subject to the same stringent standards. Dedicated storage servers, 24/7 intrusion detection systems and secure production environments are just some of the essential factors in an ultra-secure platform for developing and providing VDR technology. 

The security systems and protocols that govern Admincontrol’s Data Room

Customised VDRs improve efficiency

One of the core advantages of VDRs is their capability to provide simultaneous access to relevant documents for multiple parties involved in the due diligence process. This includes buyers, sellers, legal advisors, and financial experts. However, merely offering access is not enough to guarantee efficiency.

Customisation plays a vital role in enhancing the effectiveness of VDRs. Tailoring the platform to meet specific needs and requirements can significantly improve workflow and productivity. For cross-border negotiations, personalisable operating languages, folder structures, and an intuitive user interface help eliminate unnecessary complexities to improve productivity.

Another benefit of VDRs is their ability to track and monitor user activity within the platform. This feature allows dealmakers to record who accessed which documents and when. Such transparency adds an extra layer of accountability and aids in identifying any potential issues or concerns during the due diligence process. Access records also ensure compliance with governance procedures, providing documented evidence of access or activity that statutory or regulatory bodies may require.  

Multinational user training

As technology continues to amplify productivity in dealmaking, user training is essential to unlock a VDR’s full potential. Working across borders brings this into even sharper focus where language and cultural barriers, time zones and varying levels of technical know-how complicate usage. 

Thankfully, VDRs are intuitive, with workflows clearly organised to create a simple yet effective way to access and review large volumes of information efficiently. Despite this, selecting a VDR solution that offers in-depth user training during initial set-up and ongoing is critical to success. It is even more beneficial for multinational teams to have that training provided by a local team that understands at a native level the impact of cultural factors. Naturally, access to 24/7 technical and product support is an important consideration, too. 

Real-time reporting and analytics

VDRs can create real-time insights that add extra value to cross-border M&As. In-depth reports allow deal teams to gain visibility into the dynamics of the deal, providing a deeper understanding of what works well and what doesn't. 

Companies can gather learnings from each cross-border deal opportunity to inform future strategies and decision-making processes. While this smoothes the current process and ways of working, ultimately, being able to track every aspect and individual outcome increases knowledge and understanding of the challenges and opportunities unique to an international transaction. 

Furthermore, real-time reporting and analytics are crucial in engaging diverse and distant teams around a shared outcome. It enables collaboration and communication across geographical boundaries, and team members access the same up-to-date information. This level of visibility helps foster alignment and ensures that everyone is working towards the same objectives.

Bridging challenges in cross-border M&As

Cross-border deals have become more commonplace and complex in an ever-moving business landscape. Exploiting opportunities and overcoming the challenges we’ve explored here involves practical experience and leveraging advanced deal technology solutions.

The complex picture of cultural, regulatory, legal, and data security implications for dealmakers requires a flexible and nuanced approach. Every deal is hard-fought, but the potential for substantial risk versus reward can be managed more effectively by investing time and resources in mitigating differing business practices, legal frameworks and cultural norms. 

Notably, deal technology such as VDRs will facilitate effective working practices and can govern the appropriate safeguarding of personal information in line with current privacy regulations, such as GDPR and its international equivalents. They also promote efficient lines of communication, streamline workflows and improve collaboration across diverse teams and locations.

In summary, achieving success in cross-border M&A deals requires a combination of efficiency, effectiveness, and proactive measures to overcome many cultural, regulatory and communication barriers. Embracing technology solutions that deliver insights, real-time analytics, and workflow customisation options will improve efficiency throughout the deal process.

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