Virtual Data Room

A virtual data room (sometimes called a VDR or deal room) 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.

A virtual data room is an extranet to which the bidders and their advisers are given access via the internet. An extranet is essentially a 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.

Disadvantages of traditional data rooms:

1. Inconvenient access to documents, and the need to travel, means fewer potential bidders
2. Travel and scheduling logistics creates a longer time frame for completing the deal, therefore extending the risk that the deal could be scuttled.

Virtual data rooms have emerged as a much more efficient alternative, eliminating the time-consuming inconvenience of travelling to physical data rooms. Buyers can have their diligence team in London look at an acquisition in San Francisco without having to spend days traveling, and sellers can market and engage a much wider audience.

Many online deal rooms offer unlimited use subscriptions to run multiple deals. This means a broader range of document sharing processes can be managed online, including fundraising, M&A transactions, corporate finance, insolvency, joint ventures, licensing agreements, bidding on procurement deals, and sharing litigation files. Thousands of law firms and investment banks now license their own virtual data room platform to rapidly bring mandates to market and get deals done efficiently with less risk.

Advantages of virtual data rooms:

1. Convenient and highly secure online access to due diligence information, so you can engage a broader group of bidders.
2. Less traveling and scheduling visits shortens timelines and reduces the risk of the deal falling apart.
3. Low cost technology creates a broader variety of uses.
4. Financial and legal advisors now use virtual data rooms as a best practice to be more effective in “running deals.”