Virtual data rooms for M&A: everything you need to know

Nowadays online data rooms are an essential part of advanced teams looking to speed up their workflows. Virtual data rooms offer everything you need for productive collaboration and excellent performance.  Namely, users can share documents securely, keep in touch with interested buyers and investment bankers, and stay updated with relevant facts 24/7.

As for the clients of virtual data rooms, most of them are financial institutions, government agencies, education, healthcare, real estate, and other industries. These companies set up a solution for the smooth flow of M&A, due diligence, initial public offering, financial transactions, fundraising, etc.

What is M&A?

Mergers and acquisitions deals occur when two or more companies unite to form one business entity. Notably, this deal has become increasingly common as it opens up new opportunities for companies. Moreover, it is a strategic move to cut costs, build a customer base, increase market share, etc. 

Therefore, M&A is one of the largest and most significant events in the entire life cycle of any organization. This procedure can take a few months to several years and consists of the exploratory, due diligence process, and post-merger integration phases. 

data rooms for M&A

Exploratory phase

At the beginning of the M&A process, a seller defines what they expect from the integration with the other company and sets criteria for potential buyers. Later, they contact companies that meet the criteria, perform a mutual evaluation analysis, and offer a suitable candidate.

Due diligence process

Once the potential buyer accepts the offer, they conduct a thorough analysis of the seller’s assets, liabilities, financial statements, customer base, human resources, and more. The aim is to make sure that the M&A transaction will bring the expected value. Virtual data rooms for due diligence have also proven to be extremely secure and reliable.

Post-merger integration

Following a successful due diligence process, the integration process combines two businesses into one. The M&A participants integrate their knowledge bases, combine technology and systems, decide on the common internal policy and corporate culture, organize new department structures, and more.

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How virtual data rooms improve the M&A workflow

Since the original reason for developing the virtual data room was M&A, its entire set of features aims to improve and facilitate the transaction. As a result, customers receive ultra-secure data protection mechanisms, saving time and money, and an advanced platform for cooperation. Hence, all these things have an incredibly positive effect on the procedure.

Enhanced protection

The level of security offered by most virtual data rooms for mergers and acquisitions is very similar to how financial institutions protect their assets. 

Compliant with internationally recognized security standards, virtual data rooms encrypt all your data and implement the latest cybersecurity practices, from multiple firewalls to two-factor authentication. Besides, with the help of customizable access permissions, you’ll have full control of which third parties see which documents.  

Reduced time and cost

When your virtual data room for M&A is available on a pay-as-you-go basis, you don’t have to spend a fortune to maintain a physical data center — not to mention that your buyers save on travel expenses.

Besides, due to various advanced features, a VDR automates many processes, making it much easier and faster to manage documents and handle issues. Additionally, you can manage several business transactions in your virtual workspace. 

Improved communication

With all the necessary documents at hand, buyers don’t have to travel to your physical data room whenever they need more information — they can reach out to you with a question or a request at any time. This will allow you to collaborate with companies from around the globe simultaneously. Additionally, you can streamline communication flow using the Q&A and live discussion features.

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How to prepare the virtual data room for M&A: 3 easy steps

A virtual data room purchase is only the first step toward a better deal. Equally important is the preparation of online workspaces for the comfortable work of both parties. Here’s what you need to do to ensure that a cost-efficient cloud solution brings even more benefits and improvements.

1. Uploading files

With a superior virtual data room provider, the data room preparation process is easy and fast. You simply drag and drop the needed files and folders into the upload window. Just make sure that your documents are accurate and up-to-date. 

As for the documents that should be in a virtual data room, Forbes recommends the files mentioned below. Note that the list is advisory, therefore, discuss each item with a lawyer.

  1. Basic corporate documentation
  2. Fixed capital and other securities
  3. Tax and financial statements
  4. Assets and property
  5. Intellectual property
  6. Significant agreements
  7. Sales, marketing, and customer data
  8. Key manufacturers and suppliers
  9. Customer support
  10. Regulatory issues
  11. Disputes or litigation
  12. Data on insurance
  13. Employees/HR
  14. Procedures with related parties

2. Structuring the file system

To enable your potential buyers or other interested parties to find all the documents they need quickly, structure your data room file system. Additionally, create a separate folder with all the non-confidential documents required by everyone at the outset of the M&A and a folder with highly confidential files requested by upper management before closing the deal. 

3. Inviting participants to the data room

As soon as your virtual data room file system is ready, welcome the stakeholders. No matter how many users you invite, a data room allows assigning advanced permissions to control who can view, download, and print which files. This way, you’ll be able to streamline the process and prevent potential security breaches. 

Criteria for choosing a data room for M&A

Heed a few tips on choosing a secure online repository, as not all virtual data room solutions are the same. Since each potential user is interested in the best product to meet their needs, there are a few simple things to consider when choosing.

Best data rooms for M&A G2 score Capterra score
iDeals Virtual Data Room 4.7 4.8
Box Data Room 4.2 4.3
Brainloop 4.0
Intralinks Dealspace 3.6 4.1
Venue by DFin 5.0

Security features 

Though virtual data rooms are known for their enhanced security, the level of protection varies from provider to provider. So, make sure that your VDR offers the full scope of data protection features, like: 

  • Two-factor authentication
  • Multiple levels of access to the confidential documents, including restricted viewing mode when a data room user can see only a part of a document
  • Dynamic watermarks that appear on sensitive documents whenever someone views, prints, or downloads them

Security compliance 

When choosing your virtual data room provider, make sure:  

  • They are ISO27001 and SOC2 compliant
  • They use physical security, two-factor authentication, and advanced surveillance to protect their data centers
  • They regularly assess the reliability of their virtual data room with the help of independent experts and comply with the latest international software development practices

Data room activity reports 

Your virtual data room should allow you to track user activity, define the most active groups, and identify the most frequently visited document sections. 

A built-in reporting and analysis function like this will help you make mission-critical decisions before it’s too late. For example, if the buy-side representatives spend too much time on certain documents, they probably have concerns, that you can address proactively. 

Ease of use 

A typical M&A transaction implies sharing and reviewing thousands of confidential documents. An easy-to-use virtual data room with diverse data structuring functions can speed up this process significantly. Look for a VDR that offers the following features: 

  • Support of various file formats
  • Multilingual access 
  • Friendly mobile access
  • Scroll-through functionality enabling you to proceed to the following document easily
  • Support of many platforms, including iOS and Android 
  • Bulk invitations

Integrated Q&A

Using email to answer multiple questions from the buy-side entails problems like data leakage risks and possible confusion on who’s seen what. Instead, consider the virtual data room with the Q&A feature. 

It will allow you to control the data room Q&A process by sorting questions based on groups, folders, and areas of expertise. You can also generate reports to see what kind of issues users face most often. Based on this information, you can create searchable FAQ lists to avoid answering the same questions. 


A virtual workspace styled with your company’s brand colors and logo will surely set you apart from the competition. Given that, look for a data room with a superior customization feature. 

Along with giving you a competitive edge, it will also reduce manual work, enabling you to customize your documents with watermarks, footers, and headers automatically.

M&A is a complex transaction, and to realize it, you need the best virtual data room with most of the characteristics listed above. To simplify the choosing process, consult our top virtual data room providers list. 

M&A before and after virtual data rooms

As no one has ever guaranteed such a high level of security and convenience, the development of virtual data rooms has become an innovative breakthrough for businesses worldwide. Since the course of M&A has improved significantly with online data rooms, we can divide the transaction history into before and after. So, here’s what M&A parties used before and why this online solution became necessary over time. 

History of M&A and physical data rooms

M&A and the emergence of physical data rooms are related, as this online warehouse was born out of the deal. It happened in the 19th century during the “Great Merger Movement,” when there was an urgent need for reliable storage of confidential data.

So, a physical data room is a specific room filled with cabinets containing confidential information in paper form. 

Since one of the M&A characteristic features is the huge number of documents, the parties stipulated strict rules for accessing and using corporate records. For example, it could be permissions or restrictions on photocopying and photography, a particular procedure for accessing a room by appointment, etc.

Undoubtedly, once upon a time, physical data rooms were enormous support for the deal and, what is more, became an indicator of development for the procedure. However, this approach had both advantages and disadvantages. For example, customers were unsure about reliable data protection or integrity since competitors, intruders, and even natural disasters could threaten it.

How did a physical data room M&A work?

For a better understanding, let’s dive deeper into the history of physical data rooms and virtual data rooms to feel the difference in storing and accessing information.

Data storage

Relatively secure storage of sensitive information requires a physical place, often on the organization’s premises. However, in other cases, law firms responsible for the M&A legal aspects can provide it. Anyway, there are a few basic rules regarding storing information in physical data rooms: 

  • Someone should sort and index the content for the participants’ convenience in the transaction.
  • If the company does not have electronic backups, directors need space for additional copies outside of the physical data room. Thus, documents will not be lost in the event of an accident.
  • All interested parties should access the document index before visiting the data room.
  • Nobody can remove data from the repository whenever they want.
  • In general, the use of laptops or other devices is allowed. However, those with copying options are prohibited – scanners, smartphones, copiers, etc.
  • Since the information must remain intact and confidential, the parties may not, for example, delete, damage, or change it. Consequently, this critical aspect of working in physical data rooms requires management control or video surveillance to ensure security.
  • Parties must mark newly added documents and notify others of the addition.
  • To get a copy, the participant first makes a request and fills out a form. By the way, the request can only be satisfied if the documents are copyable.

Data access

A physical data room is evidently more complicated than a virtual data room in terms of document access. For example, you need to set specific hours for members to visit a physical repository. Moreover, not always several participants in the process can be there simultaneously. Here are some more rules:

  • Due to security measures and regulatory requirements, access to the storage, unlike virtual data rooms, is not around the clock. That is, the parties can work with documents at a particular time. 
  • Usually, visitors should name a contact person and sign a register upon arrival. Moreover, they are often monitored as a measure to prevent prohibited actions.
  • The repository owner can deny data access regardless of time and for any reason. In case of a ban on a particular person staying in the repository, they are obliged to leave it immediately.
  • Sometimes visitors hand in their mobile phones before entering the physical data room and receive them back when they leave.

All parties involved in due diligence and M&A had to follow these rules so as not to put the transaction at risk. Apparently, the requirements made operations even more tedious and time-consuming. However, fortunately, digitalized versions have replaced the traditional data rooms.

How did data rooms benefit from technological progress?

In addition to the inconvenience of physical data rooms, they also proved to be insecure. Consequently, M&A participants had to look for a more robust solution to meet the urgent need for data protection.

The first step toward digitizing physical document storage was the CD-ROM released by Sony in 1984. Compared to floppy disks, the CD-ROM stored large volumes of data, positively impacting the transaction because it made storing documents easier.

However, the developers were forced to look for better solutions because the CD-ROM risks damage or loss. Thus, in 1996, Cloud Computing from the technology company Compaq Computers appeared on the market, making it possible to store information online.

Finally, around the 2000s, virtual data rooms entered the market as a more reliable alternative to physical repositories. Explicitly designed for the due diligence process and M&A, this innovation freed participants from repetitive tasks and safety concerns. In other words, a data room streamlined the entire life cycle.

Final thoughts on data rooms for mergers and acquisitions

A data room has become a modern and powerful alternative to physical data rooms. Thus, the online platform positively affects all stages of the transaction, providing a super-secure environment and collaboration opportunities for all interested parties. 

However, to choose precisely what your team needs, you first need to study the service of a particular provider. As a result, you will understand what you can get from the product and what benefits it will bring. The next step is to prepare the M&A virtual data room, which includes dealing with sensitive documents and inviting multiple users.

Anyway, first look at the top data room vendors offering the best tools for the entire M&A lifecycle.

TOP 3 Data Rooms
1. iDeals
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2. Intralinks
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3. SmartRoom
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