Virtual Data Rooms for companies: advantages and disadvantages

According to the KPMG statement dated September 1, analysts forecast that the desire and capacity for M&A transactions among the world’s largest companies would increase in the next 12 months.

Due diligence is often seen as crucial to the success of a deal. In any case, it is at least a very important part of a transaction. The data room is a necessary tool for due diligence. The main function of this tool is to facilitate the access and use of data in M&A transactions, and this exchange of corporate documents must be done in an extremely secure way, of course. Physical data rooms played this role before the digital age, and virtual data rooms (VDR) take the lead today. VDR is an IT-based due diligence tool, which provides many advantages, compared to physical rooms.

The virtual data room exists online, not inside physical walls somewhere, so the classic thief can’t do anything with it. Even if a thief has stolen the IT device (laptop, smartphone or any other) of the person who is a user of the virtual data room, the documents in VDR remain unreachable for that criminal, while the user applies the verification two-step: multi-factor authentications, which consist not only of entering the password, but also of sending a randomly generated code to another user’s device. This method makes the theft or loss of the computing device no more dangerous with respect to the secret content of the VDR than a vegetable with respect to livestock.

Also, 256-bit SSL encryption, used by some VDR providers, is impossible to hack, and the watermark is also a great security boon.

The list of advantages of a VDR, over the physical data room, depends on the position in a transaction: are you a Buyer or a Seller?

For a Buyer, the main advantages are:

• cost savings (costs for travel, hotels and personal meetings are reduced);
• time savings (due to travel time savings as well as access time flexibility);
• transparency between the parties to a deal.

For a Seller, the main advantages are:

• cost savings;
• time saving;
• simplicity of use;
• competitive price (VDR gives the possibility to significantly increase the number of potential buyers);
• legal compliance is easier;
• the security level is higher.

Of course, the disadvantages are also present in the use of VDR. Many functions have not yet been implemented, and are constantly being implemented, just as you are reading this, they are implemented according to the tasks of customers. Nothing is perfect: neither the VDRs, nor their providers, nor the users. However, strategically, globally, the main disadvantage of VDR is relatively insufficient publicity for this tool and, consequently, a less significant role in business than VDR deserves.