A virtual data room is essential for modern mergers and acquisitions (M&A) activity. Because the data room serves as a secure, online repository for document storage and sharing, it is imperative for transactions involving dozens of individuals performing due diligence with hundreds of documents.

Physical Data Room vs.  Virtual Data Room

Physical Data Room

A physical data room, as its name implies, is a room in which important documents are kept and accessed by individuals who are in that room.

This, of course, was the only way for companies wishing to engage in an M&A transaction to present their documents to each other. It’s not just the executives of the companies who need access to documents, but also each company’s bankers, lawyers, accountants and other outside consultants providing professional services. Additional personnel, such as assistants, receptionists and even security, are also needed to manage the flow of papers and people. 

This arrangement could easily become difficult to manage. For confidentiality, only the buyer,  the seller, and their professional advisers would meet at one time which could cause significant delays, especially if there are multiple buyers for the company that’s selling. These delays and the costs to host dozens of people in live meetings proved very inefficient.

The physical data room was also subject to human error. Papers would get lost, damaged or incorrectly presented to the wrong individual. Theft was an issue as well. As a whole, the physical data room affected the integrity, quality and effectiveness of the M&A transaction.  

Virtual Data Room

Since all documents are hosted in the cloud with the highest levels of security, the virtual data room does away with physical papers and the need for scheduling dozens of people for live meetings every month. Clearly, the cost savings are felt immediately once companies migrate to the virtual data room for their M&A transactions.

All of the necessary documents from the selling company and the potential companies interested in buying become virtually accessible. Some documents may need to be converted to a particular format — or in the case of physical documents, scanned. However, each document is tagged and all interactions with that document are tracked. As such, administrators can determine whether that document was opened, read, annotated, downloaded or printed. Companies can determine which of these options should be allowed during the M&A and document review process and which should be disabled — in addition to whom should receive access and who should not.

“With the globalization of business and increased scrutiny to reduce costs, virtual data rooms are an attractive alternative to physical data rooms,” notes Investopedia.

Why Companies Need a Virtual Data Room for M&A

A virtual data room is crucial for M&A transactions. More than simply a way to securely host documents, a virtual data room accurately reflects the natural workflows in complex transactions and understands the needs of all participants in the following ways:  

Personas, Profiles and Access Rights

Virtual data rooms enable administrators to select different access rights for certain individuals evaluating the documents. This allows each party to receive his or her own unique workspace with relevant content. This also reduces distractions and the risk of documents falling into the wrong hands.  

Edits and Replacements

What if a document needed to be edited or swapped out with a newer version? Once a meeting took place, this was impossible in a physical data room; however, with a virtual data room, administrators can make document switches and alert the relevant participants accordingly.

Document Selection

While the buyer and seller want to provide the most accurate picture of their financial health, not all documents need to be presented to certain parties at once.

The virtual data room can have all of the necessary documents uploaded and online, but perhaps only make a certain number of these accessible during a first review. If a  meeting should proceed to the next stage, companies can decide whether an additional set of documents can be presented. Being able to choose specific documents reduces confusion during the early stages and speeds up the process since uninterested buyers will not be wasting time reviewing them. . 

Tips to Prepare a VDR for a Smooth M&A

Preparation of the virtual data room is important for a successful transaction. Here are a few pointers to ensure that all goes smoothly.


Because the number of documents required can be quite sizable, the selling company should identify key staff as well as those of their advisers, to help in assembling the required documents. One person should not hold the sole responsibility for setting up the data room; the set-up of the data room should be created as a project with responsibilities and deadlines for all involved.


While the use of the virtual data room cuts down significantly on the time needed for meetings, it is important to recognize that the room requires time to properly prepare and set up. It is not simply a Select All and then Click and Drag to upload all of the necessary documents. The selling company and its advisers need to take the time to scrutinize which documents should be presented; these documents may also require formatting or file changes to make them readable or accessible in the data room.

Common Problems of VDRs in M&As

There are often issues that arise in creating the data room. Those involved in the setup should be aware of these and address them as quickly as possible.

Unsigned or Incomplete Documents

Oftentimes, companies realize that copies of documents for transactions that occurred a while ago are missing important information, including the proper signatures. It’s important to check that the necessary documents include all required information.

Incorrect Permissions

The administrator of the data room needs to carefully consider any and all permissions for each individual granted access. The right person needs the right access at the right time; if this isn’t carried out properly, the evaluation of documents can be slowed down.

Information Overload

As mentioned earlier, proper document selection is key. Having too many irrelevant documents can slow the entire process down because not all documents need to be present at all times for all individuals involved. Minimizing the number of documents to be reviewed and saving documents for the next round, during which potential buyers demonstrate their intent to move forward, can streamline the process.

The Best Solution for Virtual Data Rooms

A virtual data room is not just a version of cloud document management and security for those involved in corporate and financial transactions.

Organizations should consider an enterprise document security solution like CapLinked that has years of experience providing data rooms for highly-sensitive M&A transactions. Privacy and data security are critical of course, but not at the expense of user experience. Companies and their advisers should be able to access and review documents easily, unaware of the encryption and security controls at work in the background.

Further, administrators should not only be able to easily upload documents and provide permissions and access rights but should also have the ability to take down documents and revoke permissions just as easily when different teams with different needs are involved.

Digital rights management capabilities provide complete control over how a document is accessed and utilized. CapLinked’s FileProtect feature lets companies share documents while retaining the ability to deny access to anything even after it’s downloaded.