Virtual Data Rooms: The New Standard in Financial Mergers and Acquisitions

Financial deals are predicted to make a comeback after years of slowing merger and acquisition (M&A) activity globally. This new trend towards large and complex M&A across national and international landscapes requires businesses to assess their options for virtual due diligence and document sharing. With the increasingly online nature of deals, virtual data rooms for mergers and acquisitions are on the rise for due diligence and data security.

In this article, we will explore what is a virtual data room for mergers and acquisitions, data breach concerns in M&A, the advantages of a virtual data room, and how to prepare your data room for an M&A.

What is a Virtual Data Room for Mergers and Acquisitions?

Mergers and acquisitions have historically used physical data rooms as part of the necessary due diligence process. This allowed all individuals who required access to review relevant information in a secure setting without the risk of unauthorized access to confidential documents. Now, with the international or widespread landscape of business deals, online document sharing is a necessary practice. However, this poses new challenges for information security within the M&A process.

A virtual data room (VDR) allows for the same document sharing during the M&A process while maintaining the security of information that was provided in physical data rooms. The virtual data room is a secure online platform used to share information with authorized parties during the merger and acquisition. Access can be given to any relevant parties, including lawyers, consultants, bankers, CEOs, and CFOs. A virtual data room allows your team to share or receive any relevant documentation required during the due diligence process, including, but not limited to, contracts, loan information, tax documentation, company information, and financial statements. A VDR provides a secure place for all parties to share and review information during the final stages of negotiations.

Learn more about the Extranet User Manager Data Room.

Data Breach Concerns in Mergers and Acquisitions

The confidential document sharing that takes place during the merger and acquisition process creates an opportunity for a data leak or cybersecurity breach if adequate security measures are not taken. This can have a considerable financial impact on the M&A and disrupt the entire process.

In 2017, the Verizon Yahoo M&A revealed a data breach that Yahoo had attempted to hide before and during the M&A. This breach allowed Verizon to lower the transaction price by $350 million. This highlights the importance of safeguarding data during an M&A and generally as an organization. Implementing a virtual data room for information sharing, whether with internal teams or external individuals, will keep confidential information from leaking to unauthorized users.

The Advantages of a Virtual Data Room

Increased Security

A virtual data room offers increased security for document sharing by only allowing authorized users access to documents within the data room. Access controls can be customized to restrict access or grant higher access based on individual needs.

Easy Collaboration and Accessibility

In-person data rooms previously provided a safe space for due diligence in mergers and acquisitions; however, they are limited by geography. With a virtual data room, you can collaborate with individuals globally, 24/7. This increases the efficiency of your M&A by allowing individuals to access documents when it is convenient for them, regardless of timezone differences or location.

Cost Savings

The investment in a data room will prevent deal renegotiation due to data breaches or cybersecurity threats that may arise during the M&A process. Additionally, it minimizes the costs associated with physical data rooms. The travel costs, rental, and printing fees that are required for physical data rooms are no longer necessary with a secure online option.

Preparing Your Virtual Data Room For An M&A

Each M&A will have different disclosure requirements; however, a virtual data room can be configured to support your due diligence needs. To set up your virtual data room for mergers and acquisitions, follow a few key steps to configure your VDR for security and efficiency.

1. Integrate a virtual data room into your organization

The more familiar you are with the virtual data room, the easier it will be to manage and use it effectively during an M&A. Many companies integrate a virtual data room into their organization for daily operations prior to a merger and acquisition to protect themselves while sharing data with external parties such as clients. If you are already familiar with a virtual data room, it will be simple to configure it to meet your needs for a merger and acquisition.

If you are integrating a virtual data room for the first time during a merger and acquisition, you will be able to customize your data room to meet the specific needs of your business deal.

2. Customize your virtual data room

A professional and secure platform is essential during negotiations. This requires a customized platform that meets your branding guidelines and allows users to access relevant information easily. With a secure platform customized to your brand, you are not only expediting the due diligence process, but you are also reinforcing your commitment to data security as an organization, giving buyers confidence in their decision to acquire your company.

With the Extranet User Manager Data Room, you can customize your data room to allow external access to only the relevant documentation needed for a merger and acquisition, without disrupting business operations. Our Data Room relies on Extranet Documents built on SharePoint Online to provide secure access to documents. This allows you to customize your Data Room with your branding and set it up based on your user intent.

3. Set up proper access and permissions

Choosing a platform that allows you to set up appropriate access and permissions management is essential to ensuring security in your virtual data room for M&A.

With Extranet User Manager, you can set up delegated user management, allowing trusted internal team members to manage external user permissions. This ensures that access is only permitted to those who require it, which is an essential practice in data security.

4. Upload or request access to documentation

Once your data room is set up and permissions are in place, you are ready to start sharing information through your data room. Within the EUM Data Room, you are able to set up permissions so that both internal and external users with access can view, upload, and request documents. This makes it easy for parties to facilitate or conduct due diligence in an efficient and secure manner.

As the world of mergers and acquisitions becomes more intricate, it's crucial to have technology that can keep up with the complexity. Virtual data rooms for mergers and acquisitions offer all the security benefits of physical data rooms, with the added convenience and efficiency of an online platform. In today's world, where data breaches pose a significant threat, adopting a virtual data room is not just a strategic advantage, but a necessity to ensure the protection of financial mergers and acquisitions now and in the future.