Serving Canada's Legal Community Since 1983  
RSS Feed RSS Feed
This Week's Issue:

Want to learn more about this week's issue?

Legal Update Services

Click on the links above to view recent decisions from the Supreme Court of Canada and summaries for noteworthy cases from across the country.

Virtual deals on the rise
By Nora Rock
December 19 2008 issue

(David De Lossy/Getty Images)
Click here to see full sized version.

Please contact us at
Please include your name, your law firm or company name and address.

It’s the ultimate corporate hotshot cliché: Closing a complex mergers and acquisitions deal from the deck at the cottage.

Except in the fantasy, there remain details to handle offscreen: You may be able to negotiate from that Muskoka chair, but the deal isn’t really done until the paperwork’s complete.

But according to Joel Lessem, CEO of Toronto-based software firm Firmex, replace that phone call with a few clicks of the mouse and the fantasy can be a reality.

Signed, sealed and closing books delivered? “Yes,” says Lessem.

Using a virtual deal room, a merger, or almost any other multi-party business transaction one can imagine, can be managed and closed entirely on-line.

Many business lawyers are familiar with virtual data rooms — the precursor of deal rooms — pioneered in the 1990s by loan syndicators.

“Virtual data rooms were designed to facilitate due diligence,” explained Aaron Booth, Firmex’s director of strategic development, “by allowing one party to upload documents for review by other parties.”

Booth argues, however, that the standard data room offering has several weaknesses. First, because they require an investment of programming time for set-up and administrative time for the uploading of documents, the use of traditional data rooms has generally been reserved for large deals. The cost of creating a data room — “which can run in the thousands,” noted Lessem — has typically been passed along by lawyers to their clients, a factor that  has limited that product’s use. “Also,” added Booth, “traditional data rooms require firms to direct clients to a third-party platform” — not ideal from either a marketing or a perceived-security standpoint. Finally, while standard online data rooms can organize pre-existing documents for due diligence purposes, they do not permit the management of the new documents that support the deal itself.

It was this last limitation that prompted Gillian Stacey, a partner with Davies Ward Phillips & Vineberg LLP, to ask Firmex to take the data room concept one giant step further.

“I’d done a number of deals in Europe,” said Stacey, “that necessitated a lot of travel. I did one deal out of my e-mail mailbox. When it came time to create the client’s correspondence file, there were thousands of e-mails, many with attachments… I knew there had to be a better way.”

Firmex’s solution was to create what has come to be known in the industry as a virtual deal room. The first version was custom-developed for Davies in 2005, and a commercial version was launched nearly two years ago. The deal room is now being used by several of Canada’s largest law firms, and Firmex counts individuals and corporations in Europe, South America and the former Soviet Union among its 10,000 registered users.

The Firmex offering enhances the data room concept through certain key additions. First, it incorporates an interactive deal agenda that allows parties to track the completion of tasks in the deal process and to print status reports that reflect the state of the deal at any moment in time.

Second, not only can users track their progress online, they can actually complete the work there. By uploading comments to an online draft, multiple users can collaborate to create and manage progressive versions of draft agreements until consensus is reached, storing each version in order. Explained Booth: “There’s no more ‘that e-mail you sent me last week with that comment on the agreement — I can’t find it.’”

Once a document is finalized, each party can upload a signature page. When all agenda items are complete, the deal can be closed from any desktop simply by saving an electronic closing book onto a CD-ROM, memory stick or hard drive. The entire deal — not only the due diligence documents, but also every version of every working document, perfectly organized — can remain archived online for future review.

 While standard data rooms must be created anew for every deal, the Firmex product is set up as a subscription service. The basic monthly subscription fee ranges from $375 to $1,500 per month, depending on firm size. Usage fees in addition to that base vary with the number of host users (an unlimited number of third-party users are allowed access at no extra charge). “For a medium-sized firm doing about ten deals a year,” explains Booth, “the annual cost will be approximately $25,000.” By way of comparison, Booth notes that competitors’ single-deal data rooms typically cost between $10,000 to $50,000. What clients choose to do with the product’s cost, said Lessem, “is up to them.”

 The software allows usage to be itemized for the purpose of disbursement billing, “but many firms have chosen to absorb it as a cost of doing business.” This approach is not completely surprising when the savings associated with online deal-making are considered.

 “I think there will come a time,” said Stacey, “when all deals will be done this way. When you can save your clients time and money, it becomes too inefficient to do it any other way.” Busy lawyers seem to agree; Firmex counts many of Toronto’s largest law firms among its clients, and has customers in the U.S. and around the world. 

While it’s difficult to find reviewers who have not been happy with deal room products, Daphne Frydman of U.S. firm Sutherland noted, in an otherwise positive review, that “[a] drawback for both the buyer and seller is the loss of informal interactions and sidebars that often provide insight into the other party’s strategy.”

However, Richard Potter, president of, a consulting company that provides practice management, IT and marketing advice to law firms, has observed that the clients rarely find fault with the product and often drive a firm’s decision to use it. “Once inside counsel have been invited into a Firmex deal room and they experience its high level of online collaboration with their law firm and the other advisors on a deal,” said Potter.

“[T]hey are so enthusiastic about it that they want to specify its use on future deals.”

Firmex addresses concerns about sending a client to a third party by allowing its product to be branded by the firm using it: When a visitor to the deal room clicks the link provided by the firm, the login page that appears bears the firm’s own logo. Some law firms, such as Goodmans LLP, have taken the further step of embedding the deal room page in the firm’s own website. With design assistance from Firmex, Tory’s LLP has highlighted access to deal room technology in its marketing materials.

Stacey suggested that attempts by other providers, such as Searchlight Services in British Columbia, to compete with Firmex prove her theory that virtual deal rooms are the way of the future. When asked if she had any advice for the product’s developers, Stacey offered that “there’s always a balance that needs to be reached between technical sophistication and making something simple enough that people will want to use it.”

While she doesn’t describe the software as complicated, Stacey hopes that, as Firmex fine-tunes the latest version of its product, the designers will keep user-friendliness in mind. She concedes, however, that new lawyers coming into practice tend to be technically savvy.

“I tell our articling students that if they can run a Facebook page, they can run this application,” she says.

With lawyers increasingly eager to embrace Web 2.0 as an essential practice support, virtual deal rooms are clearly here to stay.

Back      Print This Article