Due Diligence in Virtual Data Rooms

Virtual data rooms have revolutionized document management. Particularly in the due diligence segment, it offers enormous potential for facilitating the screening of documents prior to the purchase or acquisition of a company. The evaluation of potential takeover candidates was a laborious process in times of paper-based document management, which was only possible with law firms and a great deal of time. In times of financial due diligence, companies that are for sale provide their meaningful data in protected virtual data rooms so that the solidity and solvency of the company can be easily checked online.

How does Due Dilligence in virtual data rooms work?

In a virtual data room (VDR) all necessary documents are kept and managed before and during an M&A transaction (Mergers & Acquisitions, e.g. company purchase, merger or even a planned business cooperation). The digital data space required for this purpose allows the users to make these documents accessible on the internet by means of a software application, whereby it is also possible for the parties involved to jointly process the documents (e.g. purchase contracts) with appropriate access authorizations. This way, the digital space enables due diligence (the prior review of a business before a purchase).

In the course of a company takeover, not only the due diligence process is carried out in virtual rooms but almost the entire transaction. This can reduce risks as the documents are available online at all times. This way, the company purchase and sale can proceed as planned.

In addition to due diligence virtual data rooms are also used in other areas where secure document management is important, such as the review of credit extensions or private equity investments. Digital data rooms can be found in various industries, for example with investment bankers, in consulting, with financial advisors and real estate agents but also for example in debt counselling, in IT and telecommunications as well as in media houses. 

How safe are virtual data rooms?

The task of virtual data room management software is to store, manage and securely share data with business partners during an M & A transaction. To ensure this necessary data security, providers of such virtual data rooms offer extended security-related functions. These include a multi-level authentication procedure and current encryption technologies. Other protection mechanisms include, for example, time-limited access.

How do I find the best provider of virtual data rooms?

The right provider offers you comprehensive data protection, audit security and a detailed user and rights concept for an IPO, takeover, due diligence or other M&A projects, so that all parties can view relevant documents independently and anonymously and the contents remain strictly confidential until the end. Carefully verify that the provider meets the following requirements.

• an intuitive environment with your branding
• immediately implements your M&A transactions
• gives all parties secure access to all documents
• uploads even large amounts of data quickly and efficiently
• bidders may submit a confidential bid
• document transactions in an audit-proof manner