Virtual data room
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.
An alternative to the physical data room involves the setting up of a virtual data room in the form of an extranet to which the bidders and their advisers are given access via the internet. An extranet is essentially an website with limited controlled access, using a secure log-on supplied by the vendor, which can be disabled at any time, by the vendor, if a bidder withdraws. Much of the information released is confidential and restrictions are applied to the viewer’s ability to release this to third parties (by means of forwarding, copying or printing). This can be effectively applied to protect the data using digital rights management.
In the process of mergers & acquisitions the data room is set up as part of the central repository of data relating to companies or divisions being acquired or sold. The data room enables the interested parties to view information relating to the business in a controlled environment. Confidentiality is paramount and strict controls for viewing, copying and printing are imposed. Conventionally this is achieved by establishing a supervised, physical data room in secure premises with controlled access. In most cases, with a physical data room, only one bidder team can access the room at a time. This becomes time consuming.
A virtual data room is designed to have exactly the same strengths as a conventional data room: controlling access, viewing, copying and printing as well as setting time limits on viewing and logging. It has none of the disadvantages of being in a standard, physical location, needing couriers to move documents or transporting of key staff and personnel back and forth. It is also accessible 24/7 over the allowed period. With a virtual data room, documents reach the regulators and investors in a more efficient and timely manner. Do to their efficiency, a growing number of businesses and industries have moved to using virtual data rooms instead of physical data rooms.
Virtual data room vendors
- Virtual data rooms in the US: Market research report September 2014
- Virtual data rooms in the US industry market research report now available from IBISWorld September 11, 2014
- Virtual Data Roomsfor M&A and due diligence process.
Study on Virtual Data Rooms for M&A Manda (2007)