Virtual data rooms and M&As have moved along for over two decades now. Mergers and acquisitions are still the biggest use cases of virtual data room technology. Thanks to technological advancement, modern-day data rooms are way more powerful and secure now.
However, due to the rising popularity of data room software, more and more data room providers have entered the market. Although it brings healthy competition, it is also important to understand that not all M&A data room providers are reliable.
Here is a detailed guide on things to consider when choosing virtual data rooms for mergers and acquisitions and how to set up a VDR for efficient data sharing.
Things to Consider When Choosing a Due Diligence Data Room
A due diligence data room or M&A data room is a digital document repository with an advanced deal management tool. It allows users to share and store data, conduct meetings, review documents, and communicate in one place.
“Data room technology is by far one of the best things for M&As. They are more secure, advanced, and AI-powered nowadays. But, investing in a wrong or inexperienced data room vendor can literally drown businesses. I'd go for a safe and slightly expensive data room rather than a low-grade solution, which can cost me even more," says Angleo Dean - CEO at datarooms.org.
Indeed, a virtual data room is arguably the best mergers and acquisitions software, but only if you are looking in the right place.
1. Security
There are no excuses for security so start by assessing the security of the dataroom. Its main benefit is to protect your confidential information from unauthorized access.
Look for recognized security certifications like GDPR, HIPAA, and SOC2 to ensure you are hiring a certified vendor.
Virtual data room providers with these certifications store data in secure data centres. These centres have top-notch physical security measures, such as key card access, data backup, disaster management systems, and fire control.
Additionally, the platform should offer features that prevent human error. These features may include setting permissions for users and documents. The VDR must allow you to disable save, print, or copy functions to protect sensitive documents.
Here are some essential security features for M&A data rooms.
- Remote document shredding
- Real-time audit reports
- Fence-view mode for highly sensitive files
- Multi-factor authorization
- Document viewing restrictions
2. Ease of Use
The ease of use of any data room is crucial for smooth project management. Not everyone involved in the deal would be tech-savvy. Therefore, organizing and accessing tens of thousands of documents should be simple.
If the dataroom is hard to navigate, it will waste time. Therefore, it is recommended to request a demo before hiring any vendor.
Here are some key features to look for
- Bulk file upload and download: Make sure uploading and downloading are fast and can handle large files.
- Versioning: This feature keeps a record of all document versions for better collaboration.
- Built-in Q&A: Track and manage questions and answers easily within the platform.
- Platform support: A good virtual data room must support commonly used operating systems.
- 24/7 Support: Make sure help is always available when needed. It would be better to hire a vendor that offers customer support in your regional language.
- Multi-lingual support: Modern-day data room vendors like iDeals offer VDR solutions in more than 10 languages. Look for something similar.
3. Access Control
It is necessary to have control over document access and user permissions. Customizable settings allow you to manage who sees which documents. You can also set expiration dates or revoke access at any time. Watermarking documents and disabling download/print features add extra protection.
4. Pricing Model
Lastly, it is important to understand how you will be charged for using virtual data room services. Service providers mostly charge by
- Per page
- Number of users
- Storage consumed
- Project duration
- Monthly or yearly subscription mode
A subscription model is generally more cost-effective if the transaction is expected to continue for months. The first three pricing models can be suitable for one-time projects.
How to Setup Your M&A Data Room?
Following these steps will help you structure your data room in a highly efficient way.
1. Draw a Layout of the Virtual Data Room
Before starting the M&A process, start by creating a rough layout of your data room This helps you plan ahead and speeds up the process once the dataroom is set up.
Think about which documents you need and who should access them. Start by drawing squares for every important document and then make a list of the documents that should go under them. This helps you visualize who needs access to each file.
2. Assign Access to the Right People
When giving access to the VDR, it is important to balance transparency and security. More people may improve communication but can also increase the risk of data breaches or leaks. Thus, be careful about who gets access.
3. Create a Systemized Filing System
Once you have planned the layout for your data room, organize your files into categories like “Finance,” “Legal,” and “HR.”
Include a master file with documents every buyer will need, such as the NDA, teaser, and financials. Also, create a separate folder for confidential documents that is accessible only to senior management or advanced buyers.
4. Keep Documents Updated
Do not forget to regularly update documents in the VDR. Outdated files clutter the system and may not be useful. Remove old documents to avoid wasting storage space.
Summing it up
Always start with security features when choosing a due diligence data room. Apart from that, consider ease of use, free trials, pricing models, and data room control system. Some of the best virtual data room vendors for mergers and acquisitions include iDeals, Merrill, and Intralinks.
