The use of virtual data rooms has dramatically changed the way transactions are executed. There was a time time was when you had to travel to access a physical data rooms, check piles of papaer documents and meet with other parties involved in the due diligence process. Depending on the location of the participants, this could mean air or train travel, driving long distances or taking public transport. A venue had to be found, binders had to be prepared with all the documentation and often, admin staff were necessary to record the minutes of the meeting. In the case of long meetings, food and drink also had to be supplied. All this required time, effort and money, and all you needed was for one party to be delayed or unable to attend and to throw the whole process out of sync and delay the overall transaction. 

A Data Room (virtual dataroom or VDR) is, simply put, an electronic version of a traditional data room, accessed through a secure, encrypted web connection, where parties can access the documentation needed during due diligence. It is hosted by a dataroom service provider, who makes sure that all information is held securely allowing the clients to select what each user can do with each piece of documentation.  Typically dataroom fees are calculate either by number of pages or per-megabyte, 

Interesting article by Paul Siegenthaler author of the highly recommended book "Perfect M&As" about the 10 main reasons for M&A failure.

Paul highlights poor due diligence as one of the key factors that make M&A transactions fail. I cannot agree more. In the last 20 years I have participated in a number of transactions in which value was destroyed due to poor due diligence.

The main reasons that I see for poor due diligence are:

- Asking the wrong questions.  Focusing on details before deciding what actually drives value for the acquisition.

- Disconnect between the deal team and the due diligence team.  In many transactions, there is a significant gap between the deal team and the team executing the due diligence whereas the deal team just sees the due diligence findings as hurdles.

- No real business due diligence.  Many DD processes turn into a legal/financial/risk audit too early into the process, ignoring the "real" business due diligence.

- Organization of information.  Many data rooms do not take advantage of the great deal tools that most virtual data room provide such as organization of folders, Question and Answer, reporting.

What do you think?

In general, you should consider engaging a virtual dataroom (VDR) provider to share and control documents with an outside party while maintaining confidentiality and being able to track access to a given document. In particular some of the areas you should focus on are:

• Preparing documents for a transaction, especially when documents need to be put together from different sources and shared with different parties.


• Circulating information memoranda or teasers. A good virtual data room will make the process easier and will provide valuable tracking and audit information.


• Turning around drafts of legal agreements. A good dataroom offers a very simple, secure and easy-to-use document versioning system without the expense of complex dedicated document sharing platforms.


• Conducting due diligence, as a substitute for a paper or email-based data room.


• Closing a transaction, as a substitute for hard copy deal bibles. Very useful when reps and warranties are a key component of the transaction.