Virtual data rooms, or data room m&a, became an indispensable tool during Mergers and Acquisitions (M&A). For more than a decade this breakthrough in the way parties carried out due diligence shapes up the technological side of investment banking landscape.
A virtual data room is an ultimately secure cloud-based repository and document sharing platform hosting all documents related to the deal. Using the data room the information is securely distributed among all involved players. Due to the highly controlled access to the data room m&a and the documents this secure document sharing solution is indispensable for all kinds of due diligence, not limited to data room m&a providers, but also during legal proceedings, to protect intellectual property and confidential data during biotech research, as well as most other occasions when the access to the highly confidential documentation must be controlled yet easy for authorized users. Virtual data room performs equally well when the M&A process gets more complicated as new documents are submitted for review and changes which are common during the due diligence and bidding process must be transmitted to all parties involved.
Data rooms are mostly used during the M&A due diligence stage. Usually set by the sell-side, virtual data rooms for mergers and acquisitions host all documentation related to the companies, its business units, assets being sold or otherwise involved in the M&A process.
What is M&A?
Mergers and acquisitions are deals when one business entity purchases interest or aggregates another business entity. The most time- and labor-consuming activity during mergers and acquisitions is of course due diligence by the buyer. Before proceeding with the merger, the buyer naturally wants to examine the quality of the asset and understand its obligations, liabilities, risks or any issues with intellectual property. This is particularly important with the acquisition of smaller companies which have not been trading on public markets and therefore no reliable information from publicly available sources can be obtained. In this case, the buyer must examine corporate documentation with increased scrutiny.
To proceed with the deal, all parties involved in the M&A require access to the documentation. Before online due diligence room was invented, documents were presented to the potential buyers in a physical data room, usually a hotel suite or an office. To understand why data room for M&A quickly replaced traditional paper-based rooms, we could list some of its main advantages, after consulting with leading M&A data room providers.
- Cost savings. Sellers face significant expenses required to rent a physical space for a data room, photocopy all documents, file and index them, and to actually present them in such way it makes the buy-side team’s job easier. The buy-side team also faces expenses to cover travel, accommodation and actual working hours spent to analyze the data. With virtual data room, the only costs associated with data presentation are those to pay the costs of virtual data room platform fees, as well as paying to the VDR manager on the company’s side to scan all necessary documents. Uploading documents to the data room is seamless and speedy, as most of the good data room providers offer drag-and-drop functions as well as bulk upload. In most occasions with data room for M&A, the secure document sharing space can be set up in two-three hours, as most data room providers guarantee. Data room services can even cover the scanning and uploading of documents.
- Improved efficiency. Before the virtual data room became the mainstay of M&A activity, each member of interested parties had to apply for a permission to access the documents, then someone had to assist them in copying and filing the documents they needed for due diligence. This simple procedure could take weeks. If more than one party wanted to access the data, a whole waiting schedule had to be devised.
With data room m&a, all parties — and sometimes that’s hundreds of people! — can access, retrieve and share the documents, of course, if they have been authorized to do so. All of these data room users remain completely invisible to each other unless team members wish to communicate inside the Q&A tool. Only the data room owner will have the full visibility of who accesses which folders and how much time they spend viewing specific matters. People with extended permissions can print documents, which are protected by unobtrusive watermarks, and all of this is done in a matter of hours and days, any time of the day, which of course helps speed up the due diligence process. Read virtual data room reviews to ensure that.
- Multiple layers of security. Best data rooms are built with solid confidential data protection and controlled access features. Only authorized users can access the documents in the data room and can perform actions based on assigned granular permission levels. All actions including document viewing length are tracked and monitored. Multiple-factor authentication, restricted document view, document permissions expiration, and other features ensure that data stays safe from prying eyes. Best virtual data room also minimizes reliance on email and consumer-grade file sharing systems. In the past, when a physical data room user required additional information after viewing the documents in the paper-based data room, the other party could only scan and email the document. The inherent insecurity of email resulted in many serious data leaks. So make sure to do your own due diligence and do a virtual data room comparison.
- Complete transparency. To ensure compliance virtual data rooms offer complete audit trail functionality. All user actions are recorded so in case of an information leak it is easy to find out who accessed and downloaded that particular piece of data.
These days, virtual data rooms are used more than just for due diligence purposes. Extensive data indexing and sharing features along with built-in communication tools allow conducting the end-to-end M&A process in the data room. As more and more M&A transactions span country borders, with different cultures and time zones, virtual data room offers a complete deal platform that deal teams located anywhere around the world can use with ease.
While there are certain data room m&a providers who specialize only in niche data room applications in investment banking industry, the innate ability of data rooms to securely store critical documents and controlling access to the corporate data is finding its uses in many other industries including real estate, life sciences, biotech, legal, and more.