Clients and their advisers are always looking for ways to improve how deals are conducted and how information is exchanged. As a result, virtual data rooms (VDRs), which have conventionally been used during the due diligence stage of a transaction, are increasingly playing a more important role in managing the flow of information between parties.
VDRs and due diligence
VDRs have become the norm in the due diligence stage of most transactions with their levels of document control and security putting them ahead of more general document sharing services like Dropbox.
There are a number of reasons that are driving the wide adoption of VDRs in the due diligence stage of a deal, in particular:
- Simplicity. Using a VDR reduces the time necessary to complete the due diligence process and makes it easier to manage how different people access different document. The process does not have to be linear: parties can access all documents simultaneously and focus on the areas that are more relevant to the transaction. Also, advisers can review and work on the documents in the same location.
- Improved security. During the due diligence process, companies have to share critical strategic information. A VDR provides the ability to easily and securely restrict the opening, sharing and printing of documents. Key documents can be made available during a limited time and watermarked for each individual user.
- Compliance and transparency. VDRs keep track of all the activities of the buyers and sellers during the diligence process. This produces a much smaller number of potential interpretation mistakes as compared with the multiple informal sharing processes used in physical data rooms. The ability to digitally record and store all actions and documents that are disclosed also produces a more reliable and easy-to-use source of data during any potential litigation.
Over the last five years, we have seen the use of VDRs evolve very rapidly and now have a key role to play in the due diligence process. But now, our clients are using VDRs much earlier in the life of a transaction and are even using them internally between advisers and sell side clients to prepare documents before initiating discussions with potential investors or bidders.
We believe that this shift in the role of VDRs is driven by the experiences that our clients have with the platform and the fact that it is the fastest and most secure way to share and store confidential information. These features mean that the data room is useful long after the due diligence process is over as the efficiency and time saving features of the data room can still provide value throughout the deal process.
This evolution of the usage of VDRs in the transaction process means that not only are VDRs going to continue to be crucial to the due diligence phase, they will also become an integral part of the whole transaction process.