What is Deal Preparation?

What is deal preparation?
Deal preparation, or “deal prep,” prepares organizations for the due diligence phase of a transaction. It’s an external collaboration between the organization and its service providers—e.g., the selling organization and its investment bankers. The parties work together to gather, prepare, and verify the required business and financial documents.

Why is Deal Preparation Important?

In a nutshell, effective deal preparation helps ensure that the documents shared during the due diligence phase are accurate and complete. In addition to M&A, deal preparation phases are also critical in other scenarios, such as fundraising, divestitures, or asset sales. 

Ensuring the accuracy of the information provided by the seller is crucial because buyers or investors rely upon this information to make informed decisions.  In fact, selling organizations are required to attest to the veracity of their business and financial documents—it’s usually in the “reps and warranties” section of the purchase agreement. Should any of the information prove to be false later on, there can be serious consequences: 

• The deal could unravel. 
• The seller might face indemnification claims or other financial penalties.
• Individuals and organizational reputations could be harmed.  
• Sanctions for service providers connected to any form of misrepresentation. 

Avoiding these downstream risks is why organizations should invest the proper time and effort into adequate deal prep.  

Typical Documents Involved in Deal Preparation

The documents required will vary depending on the scenario. While the bankers often provide the selling entity with a checklist of all the documents they need to collect, these are not the only documents involved. In fact, there are two broad categories: collected and authored documents.  

• Documents collected for due diligence: These are the documents on the aforementioned checklists. Examples include audited financials, tax records, compliance reports, etc. 
• Documents authored for the transaction: The Bankers and Seller collaborate on these documents. Examples include the teaser, pitch decks, and Confidential Information Memorandum (CIM). 

TurnTurns complement virtual data rooms

Today, the due diligence process in M&A is supported by virtual data rooms (VDRs) such as Intralinks and Merrill DataSite. VDRs are buyer-facing platforms that host vetted and audited documents required for due diligence. With features like access permissions and detailed activity tracking, they’re ideal for serving documents to buyers. However, VDRs’ “one-way” nature means they are not well suited for the dynamic, back-and-forth collaboration processes required by deal prep.

The deal preparation phase requires extensive external collaboration on documents and files between the seller and banker (and sometimes lawyers, accountants, auditors, and SMEs).  Dedicated deal preparation tools, such as TakeTurns, are designed to manage these tasks. They offer a structured approach and a single place for document collection, document collaboration, and detailed version control, ensuring the parties can easily gather, prepare, and verify the documents required for due diligence. By using these specialized tools, organizations can reduce reliance on email and other disjointed methods, thereby improving overall efficiency and security during deal preparation. 

For example, here’s how a deal prep too, such as TakeTurns, could integrate with VDRs:

• On the Sell-Side: The banker and seller use the deal prep tool to collect, author, and verify the documents required for due diligence. Participants can include lawyers, accountants, auditors, and other SMEs. Both parties benefit from having a single place to manage the back-and-forth required to finalize deal documents, make document requests, manage revisions, and discusss/chat about the content.
• Banker: Once the documents are finalized, the banker pulls the approved versions from TakeTurns and loads them into the VDR. If necessary, the banker uses the deal prep tool to collect additional documents from the seller. Separating the deal prep tool from the VDR enables the banker to isolate new requests (or document adjustments) from the final content in the VDR, ensuring that only vetted and approved documents are ever shared with potential buyers.
• On the Buy-Side: The banker shares the VDR with buyers to support the due diligence process. Buyers can access the final version of the documents they need from a secure, centralized location. 

By integrating deal preparation tools with VDRs, bankers get the best of both worlds. They provide buyers with access to critical information via the VDR while supporting strong collaboration with the sell side through a deal preparation tool, such as TakeTurns. This combination enhances the entire process's overall efficiency, security, and transparency.