09, June 2022

Virtual Data Room: M&A Transactions Optimization

Virtual data rooms, also known as VDRs and virtual deal rooms, work as an online repository for secure file sharing, seamless collaboration, and streamlined deal-making. M&A deals benefit from the tools virtual data rooms offer at all stages of the business transactions, from initial scouting through the due diligence process to closing.

Virtual data rooms supply the necessary security features to protect intellectual property, share sensitive data, communicate with all deal participants in a controlled manner, and more. All the online data rooms’ advantages combined facilitate equipped and comfortable deal processing for everyone involved.

The benefits of virtual data rooms for mergers and acquisitions

It is hard to believe that traditional data rooms used to be the go-to solution for handling complex M&A deals. Although they contained all the necessary documents and allowed the processing of financial transactions, physical deal spaces were far from perfect.

A virtual data room (VDR) offers a seemingly more agile approach to decision-making by gathering all the files and participants inside a cloud solution and serving as an exceptionally equipped online warehouse.


Company executives cannot risk the confidentiality of data. This is particularly applicable to organizations in life sciences, high-profile investments, and enterprise corporations. Virtual data rooms protect sensitive information by regulating who can access each file, encrypting communications, and utilizing sophisticated technology for data storing.


The modern capital markets prove that data relevancy plays a crucial factor in high-stake decision-making. Unlike a physical data room, VDR allows instant access to numerous documents regardless of the contributor’s location and time zone. Such data availability made the due diligence process unprecedentedly faster and more efficient.


A data room is, before anything else, a file storage solution. But due to their digital nature and various tools for uploading files, such storage facilities are a lot more effective. The administrators and key deal handlers can easily access insights into the entire process, adjust their strategy, and make key decisions sooner.

Improved accountability

The access controls, advanced permissions, and activity reports make leakages of highly confidential documents nearly impossible. Experienced virtual data room providers ensure that you will have the full picture of what happens within the platform and make the necessary adjustments in a timely manner.

Cost reduction

Virtual data rooms are significantly more cost-efficient than physical data rooms. Online access, remote communication, and other assets such as the ability to upload Microsoft Office documents instead of physical scans allow all participants to contribute from any location. This eliminates the costs associated with maintaining a storage space, distributing paper materials, and transporting and accommodating deal handlers.

Steps to preparing a virtual data room for an M&A transaction

Well-structured M&A virtual data rooms provide participants of the transaction with fast and effective access to important documents. Your main goal is to ensure the uninterrupted distribution of information and achieve the agreement faster.

Below are the steps to optimizing the virtual data rooms for maximum effectiveness.

data room m&a

1. Preparing files and folders

This step will empower your team to change, retrieve, access, and classify sensitive documents into folders within a data room. To simplify the process, arrange the documents just as you would inside a physical data room – by departments, level of confidentiality, according to a deal stage, or alphabetically.

The general idea is to accelerate the process of due diligence by quickly locating the necessary files in your secure online repository and collaborating with multiple users simultaneously.

The folder categories you can include to prepare for M&A due diligence are:

  • Marketing package
  • Financial statements
  • Legal
  • HR
  • Initial public offering documents
  • Private equity
  • Certification program summaries
  • Miscellaneous documents that contain confidential information

2. Managing access and permissions

While the M&A transaction essentially takes place between two sides, there are a lot of third-party experts involved in the process. Including but not limited to law firms, investment bankers, property inspectors, union representatives, etc.

Experienced data room vendors know that engaging too many people in the transaction increases the risk of data mishandling and leakages. Therefore, they provide the necessary security measures for allowing limited access both inside and outside the company.

Here are some advanced tips for maintaining the confidentiality of sensitive documents inside your data room:

  • Assign constrained access to the buyers
  • Make sure that the Human Resource folder is only accessible to people in the department
  • Create several data rooms when dealing with multiple interested parties

3. Uploading up-to-date documents

Documents must be updated regularly and contain relevant facts. Outdated documents other than financial statements will clutter the data room space and distract the participants from the deal-making process. Create a schedule for revising the documents inside the virtual room to free up space, streamline the decision-making, and provide the interested parties with up-to-date information.

4. Continuous engagement with the virtual data room

Constantly engaging with the virtual data room includes:

  • Ensuring appropriate access rights for all users
  • Monitoring the user activity surrounding due diligence documents
  • Confirming the utmost data security
  • Providing document access to other interested parties
  • Directing the deal towards closure

The merger and acquisition process with virtual data rooms

A virtual data room significantly simplifies the M&A process compared to a physical data room. Specific stages of M&A where VDR plays a vital role include:

  1. Developing an acquisition strategy
  2. Distributing responsibilities
  3. Communicating with potential buyers
  4. Preparing documents
  5. Performing due diligence
  6. Facilitating negotiations
  7. Creating and signing the purchase and sale contract
  8. Closing and post-closing integrations

Below are some ways in which virtual data rooms can improve these M&A stages.

1. Developing an acquisition strategy

The combination of data room features and services creates a foundation for more efficient and faster acquisition planning. The initiating side can use data rooms to do anything from scheduling upcoming financial transactions to drafting the desired contract outlines.

2. Distributing responsibilities

While the virtual data rooms in the Merger and Acquisition processes are typically used for due diligence, they also allow delegation of responsibilities in the team to ensure a productive workflow. The deal managers can better control the outcome of the process by assigning tasks to the responsible participants and establishing the appropriate access conditions to confidential documents.

3. Communicating with potential buyers

Potential buyers can ask questions, suggest alternative solutions, and present their offers in a controlled and confidential environment of the virtual data room. It also allows the seller to oversee the big picture of business transactions and make crucial decisions faster.

4. Preparing documents

One of the foundational purposes for the virtual data room in M&A processes is the function of getting the necessary documents ready. Tools like online editing, keyword search, pre-design templates, and intelligent file indexing facilitate streamlined document management.

An advanced virtual data room will also allow seamlessly transforming scanned documents into digital forms, making the transition from physical data rooms a lot easier.

5. Performing due diligence

The virtual data room allows both sides to conduct relevant research about the company to be acquired or merged with. With a virtual data room, buyers can review crucial documents about the target and estimate potential risks and losses while the sellers look into the post-closing strategy.

6. Facilitating negotiations

Physical data rooms along with adjacent conference spaces previously served as the ultimate solution for negotiating the comfortable conditions of the deal. Now, a digital data room significantly elevates this process by letting both parties contribute remotely, exchange the required documents within secure cloud storage, and monitor data room activity to track the deal’s progress.

7. Creating and signing the purchase and sale contract

A virtual data room offers enhanced communication and built-in tools for Merger and Acquisition contractual transactions. By simplifying the extensive due diligence process and centralizing all the deal-related data, a data room allows contributors to focus on what is important and visibly accelerates closure.

8. Closing and post-closing integrations

Once the transaction is complete, the virtual data room becomes a space for carrying out the integrational procedures. This includes merging departments, restructuring management, defining a unified vision, and more. A data room serves as a communication and decision-making platform while continuing to store confidential documents.

Key data room features for mergers and acquisitions

There are certain tools that help access and exchange documents inside the online data room with utmost confidence and convenience. They are listed under the following categories.

Security controls

Full control over access and file safety is critical during any M&A stage, from due diligence to integration. To help protect your documents, most virtual data rooms will offer tools like:

  • Multiple-factor user authentication
  • Several levels of user privileges
  • 256-bit SSL encryption
  • Printing, viewing, downloading, and screenshotting restrictions

Document storage and management

For example, the ability to upload files fast and easily can seemingly simplify the due diligence process during an initial public offering. The instruments that ensure a practical approach to managing your documents are:

  • Automated indexing and labeling
  • Versatile format support
  • Built-in redaction and translation


The users inside your data rooms must have sufficient means to access, edit, and share documents. On top of that, they need convenient outlets for making suggestions, providing feedback, and negotiating the deal conditions. The virtual data room communication instruments include:

  • Private and group chatting
  • Integrated video conferencing
  • Actionable commenting

Activity reporting

User reports will allow you to see who and when viewed, edited, or downloaded documents. Access to this information can help streamline due diligence by attracting attention to neglecting areas, submitting additional information, or restricting access to specific users. You might take advantage of the features such as:

  • Access notifications on high-priority documents
  • Progress status and milestone updates on large projects
  • Smart reports built using machine learning technology

How to set up a virtual data room

Regardless of the virtual data provider you pick, these steps will help you set up a data room for an M&A transaction:

Checklist on how to set up a virtual data room

1. Pick a virtual data room provider

Selecting an efficient data room provider is essential to your deal’s success. There are many virtual data room providers on the current market, which means finding the right fit might take some time. To ensure you are making the right choice, consider the following suggestions:

  • Shortlist the suitable providers based on the company sizes and industries they typically deal with
  • Create pros and cons lists according to the features that you need
  • Explore the recent reviews across independent feedback platforms or request verifiable testimonies from the provider
  • Receive price quotations from several providers to align the offers with your budget

2. Request a free trial

Most reliable virtual data room providers offer a free trial from seven days to a month. Use this period to evaluate the platform’s usability and functionality, test the customer support reaction, and possibly begin the preparation process for the upcoming deal.

3. Set up groups and add new users

Create groups of several users and individual users to determine the roles of everyone participating in the M&A transaction. User profile configuration includes setting up notifications, establishing confidentiality levels, and outlining other privileges within the platform. For example, some users will have complete administrative control over the data room; others will only be able to access the documents to view them and leave comments.

4. Set up file permissions requests

This feature allows administrators to manipulate different request settings. For instance, you can control who can participate in file-sharing only by approval, restrict access to certain parts of the document, and demand NDA signing for viewing or downloading specific files. 

5. Add documents and files

The next step is creating a folder and subfolder structure for the most straightforward deal processing. As mentioned before, you can categorize documents by their levels of confidentiality, departments, deal stages, and more. The most important thing is ensuring that the deal flow will not be interrupted by long searches for the necessary file.

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The M&A data room allows the selling and the buying company to exchange valuable information in a controlled and hassle-free manner. There are many M&A data room providers on the market. A couple of these include iDeals, Intralinks, SecureDocs, Caplinked, Fordata, and Datasite. Ultimately, the data room you choose will become your gateway to a smooth, secure, and convenient M&A process.