Physical data rooms have almost gone obsolete when it comes to due diligence, especially in mergers and acquisitions deals. Modern-day dealmakers prefer digital routes like virtual data rooms for due diligence and other processes related to M&As.
Why do dealmakers prefer virtual data rooms when there are other online options? What is a data room for due diligence? What sets VDRs apart? What are the benefits of using virtual data room due diligence? Here are the answers to these questions.
What is a due diligence data room?
Virtual data room due diligence, sometimes referred to as virtual data room M&A, is an online document storage and management solution that companies or dealmakers use to share, exchange, manage, and distribute documents during M&A due diligence.
Due diligence data rooms address the most important concern for businesses and dealmakers — data security. VDRs boast the most sophisticated security features, which allow companies to share information without worrying about data thefts or leaks.
What’s more, virtual data rooms, in comparison to traditional physical data rooms, allow you to stay organized, and they are generally easy to use. That means not only the dealmakers but the investors and stakeholders can easily operate VDRs and stay updated on every advancement in an M&A transaction.
Also Read: Best Data Management Practices and Tips for Small Businesses
Here are the top benefits of using a virtual data room due diligence.
1. Easy data organization
A traditional data room can be devastating in modern-day corporate structure, especially during due diligence preparation. First, the dealmakers have to prepare copies of mandatory documents needed for the transaction. Then, they have to categorize them and then place the files accordingly. The process is not only expensive but highly time-consuming.
On the contrary, using virtual data rooms for your business can save you time — an integral part of any M&A transaction. Data room software minimizes the time needed to upload and organize data. For example, the bulk upload feature in the VDRs helps add hundreds of due diligence files in one go.
What’s more, dealmakers can create as many folders and subfolders according to their needs. They can also prepare separate folders for the most important documents and then categorize the remaining data.
Another good thing about data rooms is that they help dealmakers organize data in a better way. That said, all high-end VDRs come with checklists for different due diligence types, such as taxation, HR, IT, or financial due diligence.
| Pro tip: Financial due diligence is among the most important DD processes. You can learn more about the elements of this type of due diligence at: https://data-room.ca/financial-due-diligence-checklist/ |
2. Certified data protection
Any M&A transaction can fail if there are no strong measures to protect due diligence data. Sellers would hesitate to share confidential files, while buyers will strive to get as much information as possible, ultimately creating a challenging situation.
Virtual data rooms protect the interests of both parties by ensuring a safe transference of data from one place to another. For example, sellers can use advanced VDR security features like fence-view mode (it blurs or hides any section in the document as per your convenience) or self-destructive documents when sharing confidential files.
Similarly, the target company can limit the buyers from deleting, copying, printing, or scanning any file. In fact, the fence view feature prevents screenshots. Additionally, the seller company can assign roles to external users so that they can only access the data they need.
| Pro tip: Industries are regulated by different authoritative bodies. Therefore, make sure the service provider you choose must comply with your industry requirements. Common VDR certifications include FINRA, HIPAA, FISMA, GDPR, etc. |
3. Streamlined communication
Communication is the key to successful mergers and acquisitions. If there are communication barriers, it can slow things down and make buyers feel frustrated, ultimately resulting in unwanted outcomes.
However, sellers can eradicate these obstacles by employing virtual data room technology. Data rooms allow real-time two-way communication. For example, if there is a need to arrange an immediate meeting, all the participants can connect with each other in the data room, which has built-in tools for audio and video meetings.
Q&A tools are another important communication feature in virtual data rooms to facilitate two-way communication. Both parties can ask questions and give answers in real-time. Other notable communication tools include chat messengers and email.
4. Transparency
Audit logs are another tool that makes virtual data rooms a better deal management platform. These detailed activity reports cover everything happening in the data room. Virtual data room management can monitor every user and the activities they perform. Thus, it brings more transparency to the due diligence process and helps win investors’ trust.
5. Improved efficiency
Data rooms are an amazing tool to improve deal efficiency. For instance, online data room software:
- Eliminates duplicate requests or tasks
- Allows immediate, remote access to due diligence documents
- Eradicates the need for duplicate documents
- Allows sellers to deal with multiple buyers at a time
- Minimizes the cost of the transaction by reducing expenses related to paper, printing, data distribution, and physical meetings.
Final words
A virtual data room due diligence protects buyers as well as sellers. VDRs safeguard sellers from data thefts; on the other hand, buyers can access due diligence files from anywhere, anytime.
VDR settles challenges like data protection, compliance, and safer communication. Consider using data rooms for your next due diligence process if you haven’t done so already.