Virtual Data Rooms: What Are They and Why Do You Need One?

Today, more and more business mergers and acquisitions (M&A) are happening across national borders. These international transactions are creating truly global companies with headquarters in two or more countries. For example, in 2018 Comcast Corporation, headquartered in Philadelphia, Pennsylvania, acquired Sky Limited, a British media and telecommunications conglomerate located in London, England.

This is just one example, but it illustrates a growing need. The 21st-century business world requires technology that allows those involved in M&As to complete the due diligence process without concerns about security or hindrances from language barriers.

To accomplish this, today’s industrial leaders are relying on Virtual Data Rooms.

What is a Virtual Data Room?

A virtual data room or VDR is simply a modern reboot of the age-old physical data room. Physical data rooms have been around for decades and are used to provide secure spaces where representatives from M&A involved companies can meet and exchange information — usually in paper form.

But times are changing. Today, information is largely digital, and our fast-paced world demands instant data exchange. A virtual data room provides businesses located in different countries a secure space in the cloud to host sensitive information involved the mergers and acquisitions due diligence process and make it available as needed.

What is due diligence And How Does It Relate To M&A?

Due diligence is perhaps the single most important aspect of the mergers and acquisitions process. It involves the disclosure of key information by a company being sold to interested buyers.

During the M&A due diligence process, documents containing secure information about a company’s past, present, and future operations are made available to each prospective buyer. Being able to share and view such information allows companies involved in mergers and acquisitions the opportunity to review all the pertinent details of the deal. The goal of this is to provide open and transparent information that allows buyers to make an intelligent decision. Additionally, confidential information can be presented through a virtual data room simultaneously to multiple interested buyers.

Due diligence is necessary to protect both buyers and sellers involved in mergers and acquisitions.

Virtual Data Rooms Offer A Modern Solution To The M&A Due Diligence Process

Virtual data rooms make the M&A due diligence process more efficient, safer and easier for everyone involved. Through the use of a VDR, the selling party can maintain control over how, when and to whom, their data is revealed. They can also easily manage communications with multiple bidders all over the world. Virtual data rooms offer the added benefit of keeping a comprehensive digital trail of the M&A due diligence process should one become necessary.

All Virtual Data Rooms Are Not Created Equal

As with anything in business today, not all VDRs are the same. In some cases, products touted as virtual data rooms are little more than simple file sharing apps that do nothing to address security issues.

Virtual data rooms range from basic, poorly secured offerings with primitive filing structures, to sophisticated, well-secured set ups with arrays of additional features.
Basic virtual data rooms offer semi-secure, cloud-based avenues for individuals to share photos or companies to exchange inter-office files.

During the M&A process, however, critical company information is often shared. Sellers want industry-standard security frameworks and modern encryption technology. They also require greater levels of control over their stored information and how and when it is released. Virtual data rooms designed specifically for mergers and acquisitions can address all of these concerns.

Final Thoughts

Modern business leaders are looking for a next-generation virtual data room solution. They require A.I. driven software, capable of excellent security management and the ability to translate documents into multiple languages. They want strict control over how data are stored and released. Today, businesses operate in an increasingly global environment, and companies involved in mergers and acquisitions across national borders will look for the best, most intuitive virtual data rooms which meet their needs.