A virtual data room (“deal room” or “data room”) is a secure web-based document repository generally used for buyers or investors to perform their due diligence on M&A transactions or investment. It is however an increasing trend in top legal firms to use virtual document roomsto support business and commercial litigation processes for external collaboration and file sharing.
The virtual data room replaced the physical data room
The virtual data room replaced the physical data room where binders of documents were stored in a secure “monitored data room” and potential buyers or investors would confidentially book time in the room. Multiple investors and buyers to simultaneously log into the virtual data room website to review documents anonymous to each other. Virtual data roomtechnology can prevent visitors from saving or printing certain documents and limit viewing time if required. Virtual deal rooms are easy to set-up with high-powered tools that can upload or download 100s if not 1000s of documents in a matter of minutes or a couple of hours directly from a single local source or multiple locations.
Electronic data rooms fully mimic the physical data room but without the required travel or the inconvenience of booking sequential visits. A shorter time frame for reviewing diligence information and reduces risk of a deal going off track and potentially can increase bid values with a greater sense of urgency.
In 2001 several hundred M&A transactions were conducted on virtual data rooms. By 2008 the vast majority of M&A transactions (in the tens of thousands), ran their comprehensive due diligence process in such an online workspace. This has been aided the growth of lower cost and highly secure virtual data room providers.
Most M&A transactions run the due diligence process in virtual data rooms.
There are many virtual data rooms offerings that have been expanded to be ongoing use facilities for sharing confidential documents for joint ventures, biotech licensing deals, commercial real-estate, insolvency and litigation.
In addition, some virtual data room services have expanded their functionality to include “virtual closing rooms”. In this case the actual closing documents can be versioned by lawyers and executed to close the deal. This makes the process more organized and less prone to oversight and omission.
Many virtual deal rooms offer unlimited subscription packages for multiple sales or offerings. Security, integration, ease of use, quality and availability of support and training are other key differentiators among the different virtual data room service providers.
