A virtual data room (sometimes called a VDR) is an online repository of information that is used for the storing and distribution of documents. In many cases, a virtual data room is used to facilitate the due diligence process during an M&A transaction, loan syndication, or private equity and venture capital transactions. This due diligence process has traditionally used a physical data room to accomplish the disclosure of documents. For reasons of cost, efficiency and security, virtual data rooms have widely replaced the more traditional physical data room.
What is a data room?
Not long ago, the concept of a data room was vastly different to today. As little as 10 years back, if a company wanted to sell an asset, find investment, or do anything requiring disclosure of confidential information, their only option was to fill a room with all the relevant paperwork to satisfy potential buyers and investors. Interested parties would travel to visit the room in turn and carefully read through each of the documents. If they missed any detail, they would have to make arrangements to return to the room once again to search through the piles of documents.
Fast forward to today, and thankfully data rooms no longer require a single physical space. Today’s data room is virtual – a highly secure online portal, accessible remotely to multiple parties simultaneously wherever they may be. A virtual data room portal enables the entire due diligence process to be managed far more efficiently and securely.
With a virtual data room, documents are uploaded to an indexed view. The owner of the data room can then control the level of access each user has, from viewing online only to printing or downloading for further offline review. Security permissions can be varied by document or by user, allowing the data room administrator to have full control over even the most complex of transactions to keep things moving quickly and seamlessly. And throughout a project, every user’s activity is tracked to create a detailed audit trail, offering both a deeper insight into potential buyers and investors, and peace of mind for all involved.
Basic use of a data room
At a basic level a data room is like a virtual document library. A company might use a simple data room to manage and share confidential corporate files within and between offices.
Benefits of a virtual data room
The largest financial benefits accrue to the seller although buyers also benefit. For the former, advantages include:
• Improvement in the number of bidders.
• Increased bid throughout (and time zone access) if the virtual data room is accessible 24/7 over the allowed period.[citation needed]
• Increased control and understanding of bidders.
• Resulting 20%-30% higher bid values.[citation needed]
• Increased speed of transactions owing to improved accessibility
• Enhanced information secures more deals at higher prices.[citation needed]
• Conventional physical data rooms restrict the bidder or buyers’ ability to get the correct people to the room simply due to the physical location. However, Virtual Data Room opens up global markets for M&A, takeovers and property deals compared with purely face-to-face and hardcopy document transactions (i.e. business letters).
• Information cannot be downloaded and taken away in a true Virtual Data Room - only viewed by a user with the correct permissions
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