What is a Data Room?

This article defines and explains what a data room is and how it's used for due diligence, M&A, compliance, litigation, and procurement.

A virtual data room is used in due diligence, corporate governance, regulatory compliance, and procurement to streamline mission-critical processes where large numbers of documents need to be securely shared.

Explaining What a Data Room Is

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Data rooms are primarily used for the sale of a business. A traditional data room is a secure room where hard copies of corporate documents are kept for confidential review. Prospective buyers will schedule time in the “data room” to perform comprehensive due diligence on the business or assets they were potentially buying.

With traditional data rooms, the buyer has to travel (often fly) to the secure location. They then spend long-hours, and often days, sifting through thousands of documents. If there is more than one buyer, then each buyer will have to schedule certain days for “data room” or secure deal room access.

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Disadvantages of the Traditional Data Room

  1. Inconvenient access to documents, and the need to travel means fewer potential bidders
  2. Travel and scheduling logistics creates a longer time frame for completing the deal, therefore extending the risk that the deal could be scuttled.

Virtual data rooms have emerged as a much more efficient alternative, eliminating the time-consuming inconvenience of traveling to physical data rooms. Buyers can have their diligence team in London look at an acquisition in San Francisco without having to spend days traveling, and sellers can market and engage a much wider audience.

Many online deal rooms offer unlimited use subscriptions to run multiple deals. This means a broader range of document sharing processes can be managed online, including fundraising, M&A transactions, corporate finance, insolvency, joint ventures, licensing agreements, bidding on procurement deals, and sharing litigation files. Thousands of law firms and investment banks now license their own virtual data room platform to rapidly bring mandates to market and get deals done efficiently with less risk.

Advantages of a Virtual Data Room

  1. Convenient and highly secure online access to due diligence information, so you can engage a broader group of bidders.
  2. Less traveling and scheduling visits shortens timelines and reduces the risk of the deal falling apart.
  3. Low-cost technology creates a broader variety of uses.
  4. Financial and legal advisors now use virtual data rooms as a best practice to be more effective in “running deals.”


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