Why Due Diligence Data Rooms Are Critical For M&A Transactions

Mergers and acquisitions (M&A) departments put together are high-stakes deals. When one company buys another one and absorbs it or acquires major assets from a company, a lot of paperwork is generated. Much of this contains proprietary and financial information.

The highly sensitive nature of these documents means the companies have to have somewhere to put them. That is where a due diligence data room can be very useful.

IMAGE: UNSPLASH

What Is A Due Diligence Data Room?

A data room is a secure platform where all of the parties of the merger and acquisition can place all of the paperwork related to the deal. This allows the acquiring company to review the documents and files to do their due diligence.

It’s also a place where the parties involved can request documents.

There are two types of data rooms. The first is a physical data room. In large mergers and acquisitions, sellers allow multiple potential buyers to have access to the room.

Often, they will let one bidder in at a time and give their experts the space they need to review the documents while maintaining their integrity. Sometimes the sellers will force potential buyers to fly in from other parts of the country.

But that means they have to operate an expensive data room because they are equipped with round-the-clock security.

To reduce costs, many companies are moving away from those physical rooms and moving to the second type of data room, a virtual platform. These allow bidders the same access to the information but don’t require a physical space.

Digital Data Rooms Rising In Popularity

A leading market research company, IMARC Group, recently released a report entitled “Virtual Data Room Market: Global Industry Trends, Share, Size, Growth, Opportunity and Forecast 2023-2028.” Researchers found the global market for virtual data rooms reached $2.2 billion in 2022. The firm expects that market size will hit $4.8 billion in five years, showing an increase in growth of 13.9%.

Cutting costs aren’t the only reasons companies, including banks and the insurance industry, are moving toward virtual rooms. These rooms help ensure compliance and improve efficiency.

Reasons To Get A Digital Data Room

Virtual data rooms where parties can conduct their due diligence reviews for mergers and acquisitions are incredibly useful because they are very secure. The security features ensure a company’s highly-sensitive documents and data won’t be stolen, leaked, or lost.

Some of the features include allowing companies to revoke a user’s access to the room. Other tools allow you to set documents to “read-only,” so you can restrict people from downloading and printing the material. Encryption software also helps to protect the files from hackers. The documents can include watermarks that have the information of the person who has access. If they decided to share the document, they’d also be sharing their own personal data.

Data rooms are also great at cutting down on the time the parties need to close a merger and acquisition. It saves the parties from having to physically sort through piles of documents, and it makes it much easier to organize them.

Another reason to use a virtual data room is that the software makes it easy to communicate with everyone involved. There’s a question-and-answer section that everyone can click on if they need a quick answer to something about the deal.

There’s also technical support available 24/7 if there is an issue accessing the room or its data.

Of course, the biggest benefit is that virtual data rooms are easy to use. The interfaces are very user-friendly. Some providers even offer a mobile app, making it easy for those involved to access the information they need from anywhere, as long as they have a cellular connection.