Traditionally, data rooms are physical rooms where authorized parties go to review sensitive company information. They are kept secure and under constant surveillance. This is required in many legal or business transactions, such as property sales, mergers and acquisitions, initial public offerings (IPOs), share sales, business litigation, or audits.
A physical data room requires the company to keep the room on premises or pay to use a room elsewhere, such as their lawyer’s offices. Logs must be kept of who enters the room and who sees which version of each document. Because this type of data room is physically located, people must visit in person to view the information, which incurs additional costs and inconveniences. During a sale, for example, the bidder may need to be flown in to obtain the necessary documents. The same is true for lawyers during litigation or auditors during audits.
While this prevents sensitive information from being easily leaked, it is neither convenient nor cost effective for any of the parties involved.
A virtual data room (also known as a VDR or Deal Room) is an online repository of information used for document storage and distribution. A virtual data room is frequently used to facilitate due diligence during an M&A transaction, loan syndication, or private equity and venture capital transactions. The disclosure of documents in this due diligence process has traditionally been accomplished through the use of a physical data room. Virtual data rooms have largely replaced the more traditional physical data room due to cost, efficiency, and security considerations.
A virtual data room is an extranet to which bidders and their advisers have internet access. An extranet is essentially a website with limited controlled access via a secure log-on provided by the vendor, which can be disabled at any time if a bidder withdraws. Much of the information released is confidential, and viewers are restricted from disclosing it to third parties (by means of forwarding, copying or printing). Using digital rights management, this can be used to effectively protect data.
The virtual data room gives authorized users access to secure documents via a dedicated web site or secure agent applications.
Significant Cost Difference: Physical data rooms had to be rented, hired, or purchased, and then properly maintained under proper security. This entailed a significant financial investment in terms of rent, maintenance, upkeep, and security. Logs were required to be kept in order to keep track of who could access the room and refer to the documents. This was very inconvenient, and more manpower was required to supervise the operations. This entailed additional costs associated with hiring more people. Aside from that, one had to travel to the location whenever the documents needed to be scrutinized.
A virtual data room is less expensive than a physical data room because it is a cloud-based virtual solution. It is accessible from anywhere, which significantly reduces travel time and costs.
In a physical data room, searching through data takes time:
As printed documentation is stored in physical data rooms, reviewing and searching through all of the documentation is a difficult and time-consuming process. Consider how many files and pieces of paper must be sorted through to find your specific document. Whereas in a VDR, documentation is in digital form, making it very easy to organize, refer to, and edit documents. VDR makes document access easier and faster. Everything can be completed remotely and at your free time. Rather than waiting for one group to conduct their research inside the physical room and then letting the other team do their work, due diligence can be completed by all parties at the same time.
A virtual data room is a website that hosts documents that can be accessed by anyone in the world. It provides investors from around the world with access to critical documents that will assist them in making an informed decision.
Global accessibility also increases buyer competition, as the company being acquired can benefit from a higher price than would be possible if competition was limited to a specific geographical location.
Storing documents in a virtual data room ensures that the information is securely preserved for as long as the company desires. Natural disasters such as fire and storms have no effect on the documents, as they do in physical data rooms.
Maintaining documents in traditional data rooms exposes them to wear and tear; the documents will pile up to the point where access to documents from previous years will be difficult.
Due diligence management in a physical venue is far more complicated than in a virtual data room, and while some deals still require the presence of such a facility, the majority now prefers to use the online option. We also discussed the differences and advantages of using a virtual data room over a traditional physical data room.
Save your ⏳TIME and EFFORTS⏳ with⚡ DCIRRUS⚡