According to Wikipedia, a virtual data room is defined as “an online repository of information that is used for the storing and distribution of documents.” They are essentially the web version of the physical data rooms of the past. Large companies have found great benefits in the use of virtual data rooms, especially in the areas of mergers & acquisitions, loan syndication, and private equity transactions.
Virtual data rooms have not only begun to replace the physical data rooms, but they’ve done so while eliminating some of the disadvantages of the old form of data storage. Since data can be virtually stored online via an extranet, the security features necessary to protect the stored information are still present. Extranets allow information to be shared via the web while using certain security protocols to ensure that only those with permission can gain access to the data. This is not unlike the physical data rooms that also allow only certain individuals to enter. Both options also include restrictions on the users regarding sharing the information stored within with third parties. Virtual data rooms, however, have improved upon the secure data storage concept by allowing more than one interested party to view the information at the same time.
When big companies begin the process of merging with or acquiring other companies, it is vital that certain data be shared between the two parties. Virtual data rooms allow the necessary information to be stored in a centralized and easily accessible location, thus ensuring that anyone involved in the transaction can access the details involved quickly and efficiently. It is estimated that the use of virtual data rooms can reduce the time it takes to complete such mergers and acquisitions by as much as 30 days, saving time and money on both sides.
Loan syndication is another area in which virtual data rooms have become a vital piece of the puzzle. Large companies often find themselves in need of extra capital for various projects and initiatives or to assist them in hard times. It is not uncommon for multiple lenders to be involved in a loan due to the large amount of money or high risk factors involved. Virtual data room providers can assist in the loan syndication process from start to finish. First, the virtual data room is set up so the pertinent documents may be posted and stored for all participants to view as needed. After the loan process has been completed, the virtual data room allows the various lenders to exchange information regarding the account instantaneously. Finally, virtual data rooms can improve trading by allowing potential buyers who sign a non-disclosure agreement access to the loan information.
Virtual data rooms are used similarly in private equity and venture capital transactions. It is of the utmost importance that potential benefactors have the timeliest information possible. The virtual nature of the storage allows potential investors to see up-to-date information on the company in which they’re considering investing. It also makes it easy for organization and assembly of reports required by investors.
There is no question that technological advances have greatly altered the way large companies conduct business. Virtual data rooms are a perfect example of this. Tedious physical storage of important documents in a brick and mortar room that is sometimes difficult to access is no longer necessary. With virtual data rooms, companies can exchange important information in the blink of an eye. The time it takes to complete mergers and other transactions is significantly reduced, allowing everyone involved to move forward quickly and efficiently. They say that time is money, and virtual data rooms save a lot of both.