Data May Impact on Your Business Valuation in an Acquisition

With the recent increase in M&A activity, Proven Legal Technologies, the corporate forensic investigation expert, is warning businesses about potential data liabilities and how large data libraries can impact a company’s valuation in an acquisition.

Due diligence is a process that allows the Buyer to assess post-deal value in any merger or acquisition but Proven Legal Technologies, the corporate forensic investigation and e-disclosure firm, today warns that businesses are failing to consider the liability posed by old data that has been retained by the Seller, and subsequent costs this could incur.

Companies from all industries are concerned about their data, with many storing decades worth of files on back-up tapes in case it is ever required for internal use. However, data archives are costly to store, and are a serious liability to any business should it become embroiled in litigation or a regulatory document request. Should an investigation take place, or an employee file a staff-subject request, all existing data may need to be combed meticulously, incurring great expense and draining company resources. This continues to be the case even after a merger or acquisition, with data liabilities transferring to the new company.

For this reason, large libraries of data can, in some circumstances, decrease the value of the acquiree. Targets of an acquisition should expect potential acquirers to demand full visibility of the data on file and what it contains. The acquirer must question what the data liabilities will look like including any archived material.

Proven Legal Technologies advises that companies should not be retaining data when it is no longer needed or has a legitimate purpose.  Unnecessary data retention  can be avoided by reasonable document deletion in accordance with standard business practices. The acquiree should assess its document retention policies and seek to destroy back up tapes that are unlikely to be referenced by the business and thereby avoid impacting their valuation.   Any data that it deems to have a legitimate purpose may be kept for a specific reason after having been  transferred to a live document management system, that makes retrieval and search of it more viable and cost effective.

Adrian Palmer, Managing Partner at Proven Legal Technologies, comments: 

“We are seeing an increase in the number of businesses who are falling foul to inefficient data management, resulting in inflated costs of searching historical data. It is rare for a due diligence list to contain data retention issues and this state of affairs continues at the acquirer’s peril. Although there is a general fear about discarding back up tapes, companies are in a much stronger position when data storage is managed efficiently, and there is less ‘baggage’ to carry.

“If in doubt, companies should bring in experts and take advice from General Counsel at the earliest stages, to identify issues and manage data storage, ensuring that companies are not negatively impacted by data liabilities or hinder their chances of being acquired.”