What is it?

Data rooms are spaces used for housing data, usually of a secure or privileged nature. They can be physical data rooms, virtual data rooms, or data centers. They are used for a variety of purposes, including data storage, document exchange, file sharing, financial transactions, legal transactions, and more.

In mergers and acquisitions, the traditional data room will literally be a physically secure continually monitored room, normally in the vendor’s offices (or those of their lawyers), which the bidders and their advisers will visit in order to inspect and report on the various documents and other data made available. Combating the significant cost of physical data rooms is the virtual data room, which provides for the secure, online dissemination of confidential information

A virtual data room (VDR) is essentially a website with limited controlled access (using a secure log-on supplied by the vendor/authority which can be disabled at any time by the vendor/authority if a bidder withdraws) to which the bidders and their advisers are given access. Much of the information released will be confidential and restrictions should be applied to the viewers’ ability to release this to third parties by forwarding, copying or printing.

Data rooms are commonly used by legal, accounting, investment banking and private equity companies performing mergers and acquisitions, fundraising, insolvency, corporate restructuring, and joint ventures including bio-technology and tender processes.

 

Why is it important?

Many vendors have software that can create and manage virtual data rooms. Data Rooms and Transaction Management within the room is important because detailed auditing must be provided for legal reasons so that a record is kept of who has seen which version of each document. Data rooms are at the heart of a merger and acquisition due diligence process.

 

What to look for in a Data Room and Transaction Management Vendor?

You need to ensure that you have your IT team involved early on in any selection and implementation process to ensure that the tools will meet your security and privacy standards.