A data room is a physical or virtual space that aids in the management of restricted data. Data rooms are a common feature in legal and contractural situations, especially business mergers and acquisitions. They usually contain the up-to-date legal information needed for due diligence, information that may be of interest to potential buyers, bidders, or parties to a contract.
Data Rooms in Mergers and Acquisitions: An Example
Consider the documents related to a property auction. They might include a site survey, a condition survey, titles, tax records, liens, building photos, an energy assessment and more. Every potential buyer would need to see those documents in the interest of due diligence, and up until the day of the auction, documents might need to be updated or added. How can the latest versions of the documents be provided confidentially to all the potential buyers? The bidders can be given access to a data room.
Physical Data Rooms
The easiest and most effective way to limit access to data is by confining the information to a physical room, then guarding the door. That method is still in use. A physical data room can be created by gathering printed copies of documents, updating or adding to them when needed, and placing them in a controlled-access space, usually within the offices of the sellers or their legal representatives.
Imagine the expense of bringing the subject-area experts needed for due diligence in a complex corporate sale or merger to a single location. Working with a physical data room can be onerous and costly, and that is why virtual data rooms are becoming so important in international business.
Virtual Data Rooms
Virtual data rooms, like physical data rooms, provide restricted access to information; they use the latest security technology to create a digital vault that is only accessible to approved parties. The owner of the information determines who can access it, when they can access it and what they are allowed to do with it. For example, documents might be view-only, Only through downloading the documents, this would then be outside of a VDR’s security tracking ability. Virtual data rooms can block downloads and print commands, and they have features that allow their owners to track and chart every aspect of data access. A question and answer area may be provided so that if one potential buyer submits a question, Available to everyone else if the Deal Manager chooses it to be, not by default/best practise.
Virtual data rooms are gaining ground and are now used in large corporate transitions as well as smaller deals like the property auction discussed above. Choosing the best option means balancing cost, security and other aspects of the sale or merger.