The real deal
The real deal
The landmark sale of the ANA marked a revolution in the way IT can be deployed to manage a deal.
When Australia's most glittering hotel prize, the five-star ANA Harbour Grand Hotel Sydney (ANA), was sold last year for a record-breaking US$123.9 million (A$206.5 million), not only did it make history as the largest amount ever paid for an Australian hotel, it was also an historic legal landmark - the first time that new virtual data room technology had ever been used to manage a major real estate deal in Australia.
Acting for All Nippon Airways, the sellers on the ANA deal, was Blake Dawson Waldron (BDW), one of Australia's largest international law firms. With more than 190 partners and 1,400 staff in offices from Sydney, Melbourne, Canberra, Brisbane, Perth and Port Moresby, to London and Shanghai, the firm boasts a reputation for innovation in the development of cutting-edge technology for legal applications.
On the ANA deal, BWD worked closely with legal software specialists Ringtail and Diskcovery to develop their virtual data room - a secure Internet site where documents can be viewed, tracked and discussed by all the participants, at the same time. "It was particularly useful in the ANA deal because the seller was in Tokyo, and a majority of the bidders located offshore," says Ian Williams, partner, corporate advisory, at BDW.
"During the sale process the overseas bidders were able to access all the relevant documentation at any time from their overseas offices and use their preferred advisers and consultants, who could be located anywhere worldwide."
Physical data rooms
Before electronic data rooms, BDW relied on physical data rooms - photocopying, manual indexing, faxing and emails - to execute large real estate transactions, but that approach involves a range of problems.
First, real estate deals are paper-intensive and photocopying is expensive. On the ANA deal, BDW lawyers had to examine all the original approvals going back to the hotel's 1986 construction. They also had to look at the other retail businesses associated with the hotel, "...that's 17 years worth of documents and about 10,000 pages worth," says John Stawyskyj, partner, hotels and tourism, who worked with Ian Williams on the deal.
Confidentiality is also crucial in transactions where bidders are anxious that rival bidders should not know of their involvement. In the past, to address this issue, physical data rooms were set up so that documents relating to a transaction could be viewed by the different bidders and their advisers, but only at different times, according to strict timetables. This system was particularly difficult to manage in deals when one or more of the bidders involved was based overseas. It often meant that two or three physical data rooms had to be set up, with all the necessary documentation and paperwork being replicated two or three times.
Problems also arose with the practical size of physical data rooms, in turn limiting the number of people who could work in the room at any one time. The result was that the number of bidders on major real estate transactions often had to be restricted to only two or three final bidders.
But virtual data room technology revolutionised the way the ANA deal was managed - available to authorised users 24/7 worldwide, with the potential to handle hundreds of users logging in at the same time, allowing all the participants to have greater involvement in the deal process via the Internet.
"With the virtual data room our client was able to short-list nine final bidders. They were also able to access the documentation in a secure Web-based environment at the same time, from wherever they were located around the globe," says Williams. "The big advantage for our client is that you can increase the competitive tension which should lead to a better price."
John Stawyskyj agrees: "By facilitating the sale process and the competitive tension between bidders, we believe that the use of this technology assisted our client in maximising the price for the sale."
How it works
On the bidder's side, virtual data room technology provides authorised users with real-time access to the legal and commercial documents scanned onto the site. On the seller's side, authorised users can monitor the transaction as the deal process unfolds. The database records when users log in and out, which documents bidders visit, and the amount of time they spend on each document.
Emma Forbes, special counsel at BDW, managed the virtual data room on the ANA deal, adding documents throughout the transaction to provide up-to-the-minute information to prospective buyers. Documents were bar-coded in-house and a delimiter - another bar code that tells the scanning software where each new document starts - was applied to the first page of each document. Scanning was conducted out-of-house by an independent company to create both single-page TIFF and Adobe files in read-only format. Because TIFF format is impractical for printing large documents, BDW included a PDF file as the last page, for easier printing. The scanned documents were electronically stored and accessed via indexing and search functions, sorted automatically by number for easy downloading.
The virtual data room system was designed to be flexible and users were added or removed as the deal progressed. To address security issues, the server sat outside the firm's firewall on a specially built extranet site. To access the data room users needed two levels of authentication (passwords).
BDW also needed the ability to limit user access: "We could literally go to the level of a field of data on one document," says Forbes. "For example, if an individual user had been assigned to a particular group, they only got the same access that that particular group had been given. In the software, we had a group for each bidding team so that in the unlikely event the client instructed us to make a particular document only available to one specific group, we were able to do that."
The Q&A Magic
But it was the Question & Answer (Q&A) application, developed by Discovery to BDW specifications, that was the virtual data room's "killer app" for Ian Williams. "It was our greatest time saver because on the ANA deal we had between 600-700 questions that needed to be addressed. Before automated Q&A, questions from bidders would be received in writing, fax or email. This meant that the coordination and the appropriate allocation of responsibility for responding was cumbersome, inefficient and time-consuming - as well as it being difficult to track the progress of responses."
Forbes agrees: "The electronic Q&A was fantastic. It more than halved the cost of the question and answer process. The electronic Q&A system centralised the whole thing. It all resided in the system at BDW which meant that nothing could get lost. We could tell who each question had been allocated to at any given time and we could also supply our client with progress statistics in a matter of moments."
The Q&A technology is deceptively simple. During the course of a transaction bidders need to ask a raft of questions relating to the real estate itself, as well as on the various legal and financial issues surrounding the sale. With the Q&A system, bidders type in their questions, which are then automatically assigned a unique identifying number, crucial to safeguarding confidentiality. "No one should ever be able to tell how many questions are in the Q&A, because if you've only received three questions it could mean you haven't got many interested bidders. And if you've received a gazillion questions, then it's pretty obvious that the data room is probably lacking in all the right information," says Forbes.
Questions are referred to by their number and the seller types in the answer online. The bidder who submitted the question is automatically notified via email of the answer. The questions can be linked to relevant documents by clicking on a hyper-text link.
The system also keeps an audit trail, so the questions and answers can be referred back to at any time. And the Q&A technology allows sellers and their advisers to monitor the speed at which questions are answered. "The Q&A technology is really about risk management," explains John Stawyskyj. "When you are answering these questions the bidders are relying on them, and so if you respond in a way that is inaccurate or misleading, or if there is an omission, this will cause problems later."
The ANA Harbour Grand Hotel deal marked a technological first in Australian real estate transactions. That it was a resounding success means that it is surely destined to become the standard approach to managing not only real estate, but a range of other commercial deals in the future. For the physical data room - its piles of photocopies, faxes and index cards - the writing is not only on the wall, it's on the Web.
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