Data room red flags Australian dealmakers should watch for
Ten warning signs, in providers and in the rooms you are asked to review.
Some of these are red flags in a provider you are evaluating. Some are red flags in a room you have been invited into. Both are worth knowing.
In a provider
The overage rate is not in writing. The single most reliable predictor of an invoice you did not expect.
Users are charged. It will change your behaviour on the process, and not for the better.
Preparation is metered. Building the room should not cost money before anyone outside has seen it.
Storage region offered instead of a sub-processor list. Ask twice. If the list does not arrive, assume offshore processing.
Residency sold as an enterprise upgrade. Where your data lives should not depend on your plan.
Certifications claimed without a verifiable register entry. Ask which public register carries the certificate, and check the scope statement.
The audit trail cannot be exported. After completion, that export is your evidence. A screen you can look at is not evidence.
In a counterparty's room
Documents without dates or versions. Usually means nobody knows which version is operative, including the seller.
A folder structure that mirrors an internal drive. Expect gaps, and expect to find them late.
Answers given by email rather than in the room. The record is fragmenting, and inconsistencies are being created.
Permissions that let you see other bidders. If you can see them, they can see you. Raise it in writing.
What to do about it
Put the provider items into a written vendor questionnaire and keep the answers. Put the counterparty items into your diligence report; a badly run room is itself information about how the business is run.
Frequently asked
- What are the biggest red flags in a data room provider?
- An overage rate that is not in writing, per-user charges, metered preparation, a storage region offered instead of a sub-processor list, residency sold as an enterprise upgrade, unverifiable certifications, and an audit trail that cannot be exported.
- What does a badly run counterparty room tell you?
- That documents may be incomplete or superseded, that answers are fragmenting across email, and often that internal governance is weaker than presented. It belongs in your diligence report.
- What should I do if I can see another bidder in a room?
- Raise it in writing immediately. If you can see them, they can probably see you, and the seller has a permissions problem that affects the integrity of the process.
Questions on anything in this article? Email sales@linkro.com.au.
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