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. T
he 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 Diligence
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 on schedule.
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 blocking the PrintScreen button (protection against unauthorized saving of screen content), time-limited access, access only in specified IP address spaces, dynamic watermarking for document authenticity and the integration of common Office software packages.
How can I find the best provider
of virtual data rooms?
Nearly every day new VDR providers appear on the market.
The services offered are often very similar.
For example, secure data storage, secure sharing and professional data management are promoted.
Other functions may differ from other providers.
The best VDR providers offer military-grade security, full-text search capabilities, document linking capabilities, and multilingual support.
Whether or not a VDR provider fits in with its products depends on the additional functions of the software, as well as the needs and typical business processes.
In any case, for due diligence, a provider should be selected who already has experience with complex financial transactions (e.g. IPOs).