How to secure your M&A transactions with a virtual data room

Information discussed and shared during M&A transactions is always highly sensitive. Sometimes that information includes trade secrets that are the crux of the entire deal. It’s imperative that nothing slips and falls into the wrong hands: in the worst-case scenario, a leak could stop a transaction.

In this blog we discuss how modern virtual data rooms can help you overcome these challenges and keep M&A activity secure.

What is a virtual data room?

A virtual data room is an online space where you can put key documents about your company before a sale or merger. Once you have set up your room you can enable other parties (such as potential buyers) to access the documents in a controlled manner.

Typically, you will populate your virtual data room with documentation like contracts, intellectual property information, employee information, financial statements, and much more. 

Essentially, virtual data rooms are the natural digital progression from old-style physical rooms that are located on premises and hold physical paper-based documents. Like most digital transformations, they also offer great flexibility that can transform processes. For example, when an M&A is concluded, it’s easy to export the entire data room (complete with files, Q&A history and index) and create a legal archive of the process that can be used in case of retrospective claims and queries further down the line.

A virtual data room is an online space where you store key documents about your company before a sale or merger

Why are virtual data rooms important for security?

In today’s business world there are many ways to store, share and send information online that are vulnerable to cyber-attacks. Email and file-sharing services are prime examples. These services coming under more threat than ever as we all work through the ramifications of Covid-19 and increased remote working. According to research, email scams surged by 667% post-lockdown in March 2020 alone. According to another source, users have become three times more susceptible to phishing attacks.

The main benefit of virtual data rooms from a security perspective is that they help you bypass all these channels and keep your data and communication within the confines and channels of the platform.  

How exactly does a virtual data room keep M&A activity secure?

In three main ways: by controlling communication, storage and access

1. Controlling communication

Problems start with communication around M&As when people get tempted into having their conversations on insecure channels like email. Virtual data rooms help to solve this problem by providing a secure and productive alternative place to communicate and collaborate on documents that is dedicated to the project at hand.

For example, a good virtual data room solution should include an encrypted chat function that all parties can use as a minimum. Our own data rooms solution at Admincontrol includes a secure messaging module that enables users to send and receive confidential messages within the platform. It’s a hybrid between mail and chat, allowing users to communicate securely within their respective teams.

2. Controlling document storage

Problems can crop up around M&As when people start using free cloud-based file sharing and storage services to share important documents. These services tend to be designed for consumer use and do not meet enterprise-class security standards.

A virtual data room can help you overcome this issue because it provides a safe place to store and share access to documents within the functionality of the platform. There is no need to use any external service. Authorised users can also add comments and notes that other authorised users can see, so there’ s never any need to send updated documents around as attachments.

Some data rooms also have features that enable you to build information around key processes without creating separate documents. For example, Q&A modules can help you to build all the key Q&A information you need within the system. This kind of built-in functionality eliminates the need to create a separate Excel spreadsheet for Q&A that you’ll then need to send around to others.

A Virtual Data Room keeps your data and communications secure within the confines and channels of the Data Room platform

3. Controlling access

Virtual data rooms are also perfect for managing security because you can control who has access via an administrator panel. This gives you flexibility as well as security, For example, if a potential buyer drops out of the process, you can easily remove their access, or provide buyers who are still progressing with access to new sensitive data such as due diligence assessments.

You can also set levels of authorised access, and control what users see in terms of documents, folders, and Q&As. You can even set user-rights, so you manage who is permitted to carry out restricted activities like printing or downloading documents.

Concluding thoughts

Prior to 2020, most selling businesses and M&A advisors had already started using virtual data rooms rather than using more traditional physical data rooms to help keep activity secure. Now that we’re living in a Covid-19 dominated world, where travel and physical meetings are severely limited, virtual data rooms have become a necessity.

If you’re in the process of setting up for an M&A, and are new to the idea of a virtual data room, find out all you need to know by discovering more about our own Admincontrol data room solution.

Whenever you choose a data room solution, it’s also important to make sure the solution has security certifications that will help you safeguard your data in line with recognised international standards. Find out more about the importance of these certifications and what they mean on our security pages.