Importance of Virtual Data Rooms in M&A Transactions

M&A transactions are one of the most investigative transactions undertaken by a company throughout its lifespan. The degree of scrutiny and the sheer number of voluminous documents involved in an M&A transaction makes for a very communicative as well as a collaborative exercise. To provide a common yet secure platform for participants to facilitate the exchange of documents and information, the virtual data rooms (VDRs) are the industry norm in 2020 for complex M&A transactions.

So, what is a VDR?  A VDR is a secure digital platform that is used for sharing confidential information during M&A and other business transactions. Secure file sharing is one of the core requirements during any M&A deal, but not the only one. Below we list 5 crucial features that make VDRs an essential part of M&A tech-stack:


1.  Seamless Collaboration

Through the utilisation of VDR, multiple participants can work simultaneously and share real-time feedback leading to an enhanced and efficient collaborative experience. As data is exchanged across corporate hierarchies seamlessly, the ability to track inputs holds the key to maximising productivity and shortening turnaround time. Furthermore, as VDRs are accessible around the clock, their utilisation makes it easier for cross-departmental (even cross-geographical teams ) to coordinate without any information lag.


2.  Multiple File Formats

VDRs provide the functionality to store files of varying formats, including JPEG, PDF, Excel sheet, Word document, etc. in their original form; thus, eliminating the need to convert files into a specific format for standardised accessibility. Moreover, since the files are in their original form, there is no loss or distortion of data due to transition between configurations.


3.  Dynamic Indexing

In an M&A transaction, the documents are provided on a pull-basis, i.e., as and when requested. With the VDR application, files can be appropriately organised in the index with added functionality to reorganise the index for improved accessibility. As well, the recipient may be notified of changes to the index and contents of the data room.


4.  Enhanced Security

In VDRs, files may be flagged as restricted concerning accessibility, copying, downloading or printing. These restrictions can be applied to particular parts of a document or entire document or a specific set of documents. Similarly, VDRs are much more secure than traditional cloud-based storage systems, as documents stored in VRDs are governed by the ISO/IEC 27001 standard: 2013 – a global standard for managing information security management systems.


5.  Search Functionality

The VDR allows participants to sort and highlight massive blocks of documents for specific words or phrases. This functionality plays a pivotal role when a large number of records have to be reviewed to determine the use of key terms or clauses. Besides, the search functionality is not restricted to just primary language; VDRs provide multilingual support too.

The application and implementation of VDRs in M&A transactions have substantial cost benefits as well as time savings, increased efficiency, improved collaboration and above all, a greater degree of security considering the confidential nature of the documents. Not surprisingly, the importance of VDRs in managing M&A operations is becoming more and more pervasive in the industry.