The art of deal-making: Leveraging virtual data rooms for successful mergers and acquisitions

Did you know that every year, companies spend more than $4 trillion on M&A activities, but the failure percentage is still 70%-90%? What’s more, the three common reasons behind M&A failures include poor communication, cultural differences, and value destruction.

Apart from that, other in-process reasons trigger a failed M&A transaction. Poor or inefficient data management, prolonged due diligence, and lack of data security will lead to unsuccessful M&A deals.

Dealmakers can avoid all this by using efficiency-boosting M&A solutions like data room software. Data rooms minimize communication hurdles, streamline secure data management, and reduce the time needed for due diligence.

Here is everything you need to know about virtual data rooms and their benefits in mergers and acquisitions.

What is virtual data room software?

In simplest words, virtual dataroom software is a digital data management and storage platform used to store, share, access, and manage business data.

Broadly explained, virtual data rooms are advanced virtual document repositories used to automate the data management process in complex business deals such as acquisitions, mergers, fundraising, initial public offerings, clinical trials, etc.

Online data rooms are more than just ordinary cloud-based data storage tools. They come with a wide range of communication, data analytics, meeting management, and project management tools. That is the reason why they are common in almost every business sector, including healthcare, IT, telecommunications, banking and finance, and oil and energy.

Top virtual data room benefits

Here are the top reasons why virtual data rooms should be part of any acquisitions and mergers strategy.

1. Premium document security

Modern-day virtual data room providers give data room users next-level control over the data in the VDRs. For example, the VDR administration can:

• Define user roles in the VDRs and the level of document access according to their roles.
• Restrict downloading, saving, sharing, printing, editing, deleting, or copying any document.
• Revoke access to any document at any time without notifying other users.

In addition to that, users can create self-destructive documents to share highly sensitive information. They can also protect confidential information using fence-view mode. The data in the VDR is shared or stored in encrypted form.

2. Control data room access

There are entry barriers in the dataroom software to minimize the chances of unauthorized entrants. Data room providers nowadays provide a two-step verification feature. It is a two-step log-in process that ensures only legitimate users can access the VDR. In case of any suspicious activity, the data room administration can immediately remove any device from the VDR as well.

3. Regulatory compliance

One of the biggest challenges for the dealmakers is to comply with the standards set by regulatory authorities. As mergers and acquisitions include massive volumes of data sharing, industry-relevant governing bodies require dealmakers to employ data-sharing methods according to specified benchmarks.

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For example, the finance industry in the United States must adhere to data management standards set by FINRA. Similarly, healthcare corporations must comply with HIPAA data management practices.

Thanks to virtual data room vendors like iDeals, Datasite, and Intralinks, dealmakers don’t have to worry about compliance challenges. These service providers are already certified by famous governing bodies like FINRA, FISMA, HIPAA, ISO, GDPR, etc.

4. Streamlined due diligence

Using data rooms for due diligence is a proven way of reducing the time needed for this process. An average M&A transaction takes about three to six months, but it can take longer if the process is mismanaged.

Virtual data rooms eliminate inefficiencies from the due diligence process in the following ways:

• The data is remotely accessible, which means the buyer side does not have to visit the sell side paper data again and again. It saves time and money.
• The data retrieval and search process is simple and fast. Users can locate a specific file in the data room in a matter of seconds—thanks to the full-text search feature. Again, it saves time.
• It is easy to add notes and comments in the files while concerned users are notified immediately. This way, both sides can request and give explanations in real time.
• Both sides can arrange online meetings with investors, stakeholders, and other concerned parties. Virtual data rooms can easily accommodate tens of users in a meeting.

5. Cost reduction

Lastly, online data room software is a super cost-effective solution for M&As. If you are using a data room, there is no need to spend money on paper documentation (printing, paper, and courier expenses). Also, virtual meetings can replace physical meetings — thanks to VDRs.

Final words

Data room software for mergers and acquisitions makes due diligence more efficient, protects digital information, saves money, and streamlines communication in M&As. Some of the best online data room providers for M&As include iDeals, Datasite, Intralinks, Caplinked, and Sharevault.

Featured image credit: benzoix/Freepik