Last Updated on December 12, 2024
A virtual data room (sometimes called a VDR) is an online repository of information that is used for the storing and distribution of documents. In many cases, a virtual data room is used to facilitate the due diligence process during an M&A transaction, loan syndication, or private equity and venture capital transactions. This due diligence process has traditionally used a physical data room to accomplish the disclosure of documents. For reasons of cost, efficiency and security, virtual data rooms have widely replaced the more traditional physical data room.
Disadvantages of a physical data room
- Time consuming
- Narrow bandwidth
- Expensive
- Cost of travel
- Paper intensive
Benefits of a virtual data room
The largest financial benefits accrue to the seller although buyers also benefit. For the former, advantages include:
- Improvement in the number of bidders
- Increased bid throughout (and time zone access) if the virtual data room is accessible 24/7 over the allowed period
- Increased control and understanding of bidders
- Increased speed of transactions owing to improved accessibility
- Information cannot be downloaded and taken away in a true Virtual Data Room – only viewed by a user with the correct permissions
