A data room is a secure platform used to store important data, usually used for legal proceedings or for mergers and acquisitions deals. Data rooms store documents, share files, secure sensitive documents, and help in financial transactions. We have two types of data rooms: physical data rooms and virtual data rooms.
In M$A, the data room is set up by the seller in business premises, where the buyers, sellers, and everyone handling the transactions can meet to review the documents.
Physical Data Room
A physical data room is also called a due diligence data room. It is a physical location set up by the seller to store important documents needed during an M&A transaction. The data room acts as part of the larger due diligence process; buyers and their attorneys can access the documents compiled and stored before closing the transaction.
Buyers always want to get enough information about the company before closing the deal. Therefore, the seller compiles the required documents and stores them in a central secure place to limit the people who can access it to only those who have authorization. Often, the seller allows access to one bidder at a time, together with their representatives to maintain the integrity of the documents.
This requires bidders and buyers will be forced to travel from wherever they are to access the documents for through the entire process. To do the bidding process better, sellers are moving to virtual data rooms.
Virtual Data Room
A virtual data room on the other hand is a cloud solution of storing ad sharing information in a secure way. It also facilitates due diligence process of M&A since it allows potential buyers and their representatives to access information and communicate from wherever they are. VDR works online, the seller feeds information to a secure data room online. The data can be accessed only when you have passwords and more security details that will be shared to you by the administrator.
Virtual data rooms are quickly replacing physical data rooms since they are cost efficient, easily accessible and more secure with the passwords, encryptions and watermark feature.