What Is a Virtual Data Room?

Advantages of a Virtual Data Room

  • Cloud-based technology
  • Collaboration tools
  • Innovation

Those who are new to banking or advising, or companies who are unfamiliar with the mergers & acquisitions (M&A) process may not have heard of  a “virtual data room.”

However, some people may be familiar with the term “data room.” 

So, what is a virtual data room (VDR)?

When there is a corporate action being planned, whether it is a sale, acquisition, or merger, there are many documents that need to be gathered. 

This process is called due diligence, and it is a necessary part of any transaction. 

Due diligence is the process of reviewing and investigating any information, such as company financials and legal documents, before engaging in any transaction with another company. 

This can be an extensive process, as various documents need to be gathered, including company financials, legal documents, statements, etc.

In addition, the due diligence process can take several months to complete, involving parties of lawyers, accountants, company executives, and auditors.

The traditional data room

Due diligence requires a large number of documents and a significant amount of information is gathered over time. 

Years ago, this information was stored in banker’s boxes, indexed manually and organized via Excel spreadsheets. 

If someone wanted to find, check or reference a document, this person had to physically travel to the data room site (often a leased storage room or some sort of facility) to find this information. 

This was not only time-consuming and inconvenient, but also costly, as the physical facility had to be rented out, and travel to and from the data room had to be accounted for, and the time it took for any auditor, lawyer or other professional to access this facility was an expense as well. 

Another factor to consider is safety and security. 

In the rare event of a flood or other natural disaster, documents could potentially be damaged or lost; also, often these documents contain highly confidential information; if these documents become compromised or stolen, the deal and the companies at stake could be in jeopardy. 

Key advantages to moving to a VDR

Cloud-based technology. 

As technology has become more advanced, the concept of a virtual data room has emerged over the last several years. 

These virtual data rooms host the due diligence documents on a cloud-based platform. This option solves many of the issues that physical data rooms presented.

The cost to host a cloud-based server is significantly less compared to the cost of physically hosting and maintaining a data room. 

The issues of accessibility are solved as well, as documents are accessible with the click of a mouse, and share-ability of documents is simple; there is no need for extensive travel as all documents are cloud-based. 

VDRs are also created with stringent security features, protecting confidential information from being compromised or stolen; also, these files are all backed up, mitigating the risk of loss that a physical data room presents.

Collaborative tools.

Besides the distinct advantage of saving money by moving from a physical data room to a virtual data room, employees can find documents easily, stay organized and collaborate seamlessly. 

The VDRs of today have many features, including tools to support and enhance collaboration, including communication tools that centralize communication within one platform, reducing the need for excess emails, meetings and conference calls.

Deal cycles can be shortened, as delays in finding or locating documents are minimized. 

This, in turn, can increase productivity for all parties involved in a deal.

Innovation. 

In addition, the utilization of a VDR demonstrates to clients that a company is innovative and current with today’s technology standards.

Also, using a VDR demonstrates transparency, trust and accountability.

Choosing a VDR over a traditional data room has so many distinct advantages, from cost savings, minimizing risk, reducing time spent locating documents, to enhancing and supporting accessibility and transparency across the deal for all parties involved. 

With so many VDR options out there, it is easy to find a solution tailored to the specific needs of a corporate transaction. 

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