Virtual data room software comes at the top whenever there is a need for conducting due diligence for mergers, IPOs, acquisitions, divestitures, or similar transactions. Although data room software isn’t a new name in dealmaking, its use has grown immensely in the last few years.
Online data rooms simplify data sharing and communication between concerned parties during due diligence. But isn’t it what other free tools like Google Drive do? Yes, you can use G-Drive for data sharing, however a virtual data room offers way beyond regular data sharing.
Read on to learn about the role of a due diligence virtual data room in dealmaking and why it is better than free data storage solutions.
What is a virtual data room?
A virtual data room is essentially a cloud-based, secure document repository where any type of business or professional can easily store, share, exchange, and distribute documents and other types of files such as videos, audio, podcasts, images, etc.
Data room users can edit, annotate, print, save, share, and download documents from the VDR. But what makes them unique is diversity. That said, online data room software is not only a document repository for digital data, it is a comprehensive business solution that comes with communication and deal management tools.
What’s more, digital data rooms are hosted or managed by certified virtual data room providers. Certifications vary from vendor to vendor, depending on the industry they are serving.
For example, virtual data room providers serving the financial sector in the US are mostly FINRA certified. Other global certifications include ISO, GDPR, and SOC2.
Some high quality data rooms include iDeals, Firmroom, Merrill, ShareVault, SecureDocs, and ShareFile virtual data room.
Why data rooms for due diligence?
The core objective of conducting due diligence is to examine or evaluate a business from different perspectives before making a decision. Due diligence has different types and is an integral process in IPOs, M&As, joint ventures, etc. It is safe to say that the success of any transaction depends on the results of due diligence.
The process protects the buyers as well as the sellers, but it holds more significance from the buyers’ perspective. Due diligence helps them ascertain whether it is worth buying another business entity or not. However, the process is tricky for sellers as they have to expose their corporate documents containing lots of confidential information.
A virtual data room helps both buyers and sellers in this regard. It provides much-needed protection to sellers while buyers can easily access every due diligence document they need.
Importance of virtual data rooms in due diligence
“Businesses face a multitude of challenges in due diligence, such as document security, managing a large number of participants, and compliance requirements. A virtual data room can easily combat these challenges and many others,” says Ronald Hernandez, Founder of dataroom-providers.org.
Now, let’s review some of the top benefits of a virtual data room for due diligence.
1. Highest security levels
A data room gives you the luxury of protecting your data from external as well as internal challenges. You can keep the hackers away from your VDR by employing features like multi-factor authorization, IP address restrictions, device deletion, etc.
It is even better when it comes to protecting documents inside the VDR. You can limit user access individually and collectively and restrict any user from performing any function (copy, edit, remove, download, etc.) on any file.
Furthermore, features like fence-view mode give you the option to hide any section, line, paragraph, or page in a given document. You can also track files, revoke document access, and remove any VDR document from devices connected to the data room.
2. Compliance
Compliance, as mentioned by Hernandez, is a significant challenge faced during due diligence in M&As and other transactions. Most virtual data room providers strictly comply with compliance standards, including:
- HIPAA/IT compliance
- FISMA, FedRAMP, and DIACAP
- SOC 2 Type II
- SSAE16, SOC1, and ISAE 3402
- DOD CSM Levels 1-5
3. Activity tracking
Any high-end virtual data room keeps details related to the log-in and log-out times of data room users. The admin can also track activities performed on documents. That said, they can track how much time users spend on a given document.
Activity tracking allows the management to determine buyers’ interest and help them rearrange the documents in buyers’ preferred order. The administration can also track the activities of other team members.
4. Easy data organization
How to organize due diligence documents is another challenge. Virtual data rooms often provide due diligence checklists depending on the type of due diligence. It allows sellers to upload and arrange the documents according to buyers’ preferences.
Wrapping it up
Using a virtual data room for due diligence protects both buyers and sellers. The data room protects sellers from data thefts, while buyers can access due diligence data remotely.
A virtual data room is a top choice for modern dealmaking, because it resolves challenges like compliance, safer communication, and data security.
If you consider implementing virtual data rooms in your daily operations, conduct your virtual data room review and comparison for making an optimal, data-driven decision.