The 21st century virtual data room: A how-to guide

In an era of fast deals and big money, Tom Horsman, head of technology at Imprima, explains how a virtual data room aids the process.

The humble data room has undergone a wealth of changes since the introduction of digital technology to the M&A due diligence process in the 1990s.

The swap from physical to virtual made room for a wide variety of functions that fundamentally overhauled how deals were executed, and laid the foundations for innovation that is still moving at pace today.

The flexible management and content structure of virtual data rooms (VDR) is still one of the most fundamental areas of development that technology has facilitated. The efficient layout afforded by the ‘data tree’ allows users to divide up a data room into easily accessible yet distinct sections, making content searches as easy as possible for those with access to specific data, coming to the process afresh.

This design has also been used to build a key component of benchmark VDRs – a Q&A section integral to it. Opening a dialogue between interested parties about a highly confidential topic is now structured, secure and held for compliance post deal. Questions (and their answer chains) can be posted across the secure network or limited within that network, significantly lessening the time spent over a deal as information can be sourced quickly. Queries and issues can be raised, with expert users resolving them and then alerting users to this fact by categorising the initial query as solved. The Q&A is designed to drive efficiency and relationships – two of the key elements of a merger or acquisition process.

VDR’s have also enabled developments to be made in the security of confidential processes. The issue of access to such confidential documents is one that those in the M&A industry are faced with day in, day out. The structure inherent within state of the art VDR’s allows administrators to put in place not just different levels of access for folders and files, but also different permissions. This prevents the dissemination of confidential materials by restricting access or preventing people from printing or saving documents, limiting them to viewing only.

This is in addition to the back room technology that helps make VDRs one of the most secure technology service around: ISO accreditation for infrastructure and staff, 256 bit data encryption and two-factor authentication are just a few of the features that should come as standard.

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Another element that should come as standard is the service. Rapid technology growth, by its very nature, can easily leave people behind in terms of understanding usage and capabilities. VDR providers are, or should be, offering support teams to all clients, advising them on topics ranging from best practice data room structuring to data collection on VDR usage. These services, for us, are integral to the service we provide. The deal landscape can change quickly and unexpectedly, and so clients often need support at all times of the day, be it with supporting specific investor requests or with the production of the final deal handbook.

Such end-of-deal reporting is matched by the capability of VDR administrators to report internally on the usage levels of a VDR by those who have access to it. Information can be generated in real-time and filtered by a number of criteria, such as documents viewed, user activity and folder activity. These can prove invaluable to the deal team in assessing who are viable players in the deal, and which areas are of the most interest. With such invaluable information to hand, the M&A process can be made as smooth as possible.

This is certainly what all financial services technology should aim for. Facilitating the achievement of the end goal, whatever it may be, is paramount, and so the development of VDRs over the past decade and a half has been moving towards this goal. I believe that will continue apace as new technologies and new methods of dealmaking arise, ensuring the financial industry has the tools at its disposable to succeed time and again.

Hunter Ruthven

Hunter Ruthven

Hunter was the Editor for from 2012 to 2014, before moving on to Caspian Media Ltd to be Editor of Real Business.

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