Managing the Data Room as Counsel: Staged Access and the Activity Log

The tiers and what goes in each

A data room for a competitive process has three or four tiers, and the structure is set before the first buyer is admitted.

Tier one supports the IOI. It contains the CIM, summary financial statements for three years and year to date, a summary of the adjustments to EBITDA, an organizational chart with roles but not names or compensation, a customer analysis with customers identified by number or category rather than name, a summary of material contracts by type and term, and the process letter that sets the IOI deadline and format. A buyer can form a view of value from tier one. A buyer cannot identify the customers, poach the employees, or reconstruct the pricing.

Tier two supports the second round and management meetings. It opens to the buyers invited past the IOI deadline and adds detailed financials with monthly data, the quality of earnings report if one was commissioned, customer contracts with names, employee census with compensation, the material contracts themselves, leases, and the disclosure items held back from the CIM.

Tier three supports confirmatory diligence under an LOI. It opens to one buyer and contains everything else: tax returns, insurance policies, litigation files, environmental reports, benefit plan documents, and the long tail.

Some processes add a clean team tier for competitively sensitive information such as pricing by customer, which goes only to the buyer’s outside advisors under a clean team agreement, never to the buyer’s operating personnel. The FTC recommends tailoring information to the stage of the process and using clean teams or other safeguards when competitively sensitive information must be exchanged. [1] DOJ and OECD guidance likewise identifies data rooms, clean teams, confidentiality protocols, and redacted or aggregated materials as safeguards during diligence. [2] The attorney decides whether the client’s business needs this and drafts the agreement if so.

Why the attorney controls admission

Every buyer admitted to the data room is a decision, and the decision belongs to the attorney and the client. The question is not whether the buyer signed the NDA. It is whether this buyer, at this stage, should see this tier. A strategic competitor who signed the NDA and submitted an IOI at the bottom of the range is a buyer the client may decide should not see tier two, because the value of what the competitor would learn exceeds the probability that it wins.

The attorney should also control who within a buyer has access. Private equity firms will add their lenders, their accountants, and their consultants. Each addition should be requested and approved, and each should be covered by the NDA’s definition of representatives. A buyer that adds a portfolio company executive to the data room without asking has done something the attorney needs to address immediately.

Access is time-bound as well. When a buyer is eliminated after the IOI round, access ends that day, and the NDA’s return or destruction obligation is triggered in writing. The attorney keeps the record of when each buyer’s access opened and closed.

Reading the activity log

Many data room platforms record which user opened which document and, depending on the platform, may record time spent. In a competitive process, this log can be a useful source of information about buyer behavior between the IOI deadline and the LOI.

A buyer that has opened every document in tier two and spent an hour on the customer contracts may be preparing a real bid. A buyer that opened the CIM and nothing else may not be ready to advance or may be waiting to see whether it makes the second round. A buyer whose lender has started reviewing the financials may be working through financing, but the log alone does not establish that the buyer’s investment committee approved the pursuit. A buyer that has spent most of its time in the litigation folder may have a concern the attorney should address before it becomes a price reduction.

The log can also show what several buyers are examining. If four of five second-round buyers spent unusual time on the lease, the lease may become an issue in multiple LOIs, and the attorney can prepare the client’s position now. The attorney should review the log weekly during the second round and share a summary with the client.

Two cautions. The log shows attention, not intent, and a buyer with a large deal team may generate activity that a lean buyer would not. The attorney should never tell one buyer what another buyer has been reading.

Q&A through the data room, not around it

Buyers will ask questions. The attorney should require that every question come through the data room’s question function or through the firm by email, and that no buyer contact the client, the client’s employees, or the client’s advisors directly. The reason is control: the attorney wants to know what every buyer has asked and what every buyer has been told, and the attorney wants every buyer to receive the same answer to the same question.

Questions are answered on a schedule, such as twice a week, in writing. The attorney drafts the answer, the client confirms the facts, and the answer goes to the buyer that asked. If a question reveals a fact that is material and not already disclosed, the attorney decides whether the answer goes to all buyers, and usually it should.

Keep the Q&A log as a document. It becomes part of the disclosure record, and at close it is evidence of what the winning buyer knew and when.

Preparing the data room for the purchase agreement

The data room is also the foundation of the disclosure schedules. Every document a buyer has seen is a document the seller can reference in a schedule, and a well-indexed data room makes the schedules faster to draft and harder to argue with. The attorney should keep the index current throughout the offers phase, and should note the date each document was added, because the purchase agreement may define disclosed information by reference to what was in the data room as of a certain date.

One thing to do this week: for a client whose documents you already hold, sketch the three tiers on one page and assign each document category to a tier. That sketch is the data room plan, and it can be done before any buyer is on the list.

How Acquivo Pro fits

Acquivo Pro’s data room is the same one the client populated through the branded portal during discovery, so by the offers phase every document has already been uploaded once, indexed, and approved by the client for disclosure. The attorney stages access by tier, admits buyers as NDAs and IOIs come in, and tracks who has what in the single pipeline alongside NDA, IOI, and LOI status for every client. Client data stays isolated and is not used to train models for other customers. The attorney controls every admission and every answer. To walk through a process on a client you have in mind, request a demo through the Contact page.