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,
Virtual Data Rooms have become the norm in the due diligence stage in most transactions: substituting the paper-based data rooms that were traditionally set up in law firm offices or even in hotel rooms.The use of VDR’s has become truly global and ubiquitous, from simple mergers between moderately sized corporations to complex globe-spanning transactions involving multinational conglomerates
Data rooms of the past were physical locations where the relevant documentation necessary for the due diligence phase of a corporate transaction (for example, a Merger & Acquisition transaction) could be accessed by all involved parties. This was generally located in an office space or corporate boardroom, though sometimes a meeting facility or even a hotel room was utilized out of convenience or neccessity. It created several challenges, such as the expense of getting the relevant people to the location of the room and the cost of printing all the pertinent documentation.
Thanks to the introduction of the VDR as a viable option for corporate transactions, these challenges are a things of the past, and the due diligence process – along with a host of other aspects of corporate transactions that are made easier with the use of this service – is made significantly more efficient and cost-effective.
1. Security
Virtual Data Room add an important layer of security over traditional data rooms, as it inherently provides a record of when the room was accessed, and where it was accessed from (through the recording of IP addresses and user authentication information). Furthermore, saving and printing can be restricted as applicable, and watermarks can be added to documents which are copied, thus making security leaks much more rare, as well as providing a ready means to trace the source of a leakage in the event that documents are obtained by unauthorized parties.
2. Cost Effective
The added convenience and cost-effectiveness of a VDR simply cannot be overstated. For instance, if the transaction involved a company located in the United States and one located in perhaps Europe or India, the travel and lodging expense involved with getting the personnel to the data room location was not insignificant, not to mention the time this added to the entire process. Now, everybody involved can access the documentation right from their home office location, making the process more cost-effective, more convenient, and more time-efficient.
3. Ease of Access
Another important advantage of a virtual data room is the fact that it is a highly adaptable platform. When dealing with complex transactions between two different organizations, there are countless variables that must be in compliance with both sides of the transaction, as far as documentation formatting and sourcing, security protocols, and so forth. And these variables can change drastically from one transaction to the next – or sometimes even within the same transaction as circumstances develop.
4. Improved Productivity
A quality virtual data room provides the needed adaptability so that companies can make the acquisition decisions that best fit their overall strategy, without having to be concerned with their ability to meet the logistical challenges that come along with those decisions.
Virtual data rooms have become so functional, in fact, that they are now being used beyond just the due diligence phase of a transaction, and are often deployed to one degree or another from the research phase all the way through closing – and sometimes even used within an organization to facilitate certain types of interactions between various departments and divisions.
There are a wide range of options when choosing a dataroom provider, and not all services are created equal. It is imperative that diligent research is done to determine what an organization’s specific needs are, as well as the range of options offered by the various services to ensure that the service’s capabilities and features are the best match for the transaction
They are essentially standard elements of any corporate transaction in the developed world, and are rapidly becoming more widely available even in developing markets.
As the technology advances, virtual data rooms will continue to provide greater convenience, security, and flexibility to all manner of corporate transactions.
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