Corporate Finance & Accounting

Virtual Data Room (VDR)

What is a virtual data room?

A virtual data room (VDR), also known as a trading room, is a secure online repository for document storage and distribution. It is often used to review, share and disclose corporate documents during the due diligence process prior to a merger or acquisition.

key takeaways

  • A virtual data room, or VDR, is a secure way to store documents that multiple people need to access at the same time.
  • Businesses typically use VDR when merging, undertaking projects, or other joint ventures that require access to shared data.
  • VDRs are considered more secure than physical documents as there is no risk of loss or accidental destruction during transport.
  • Normally, operations such as copying, printing, and forwarding are disabled in VDR.

Learn about virtual data rooms

Virtual data rooms are increasingly replacing physical data rooms traditionally used to disclose and share files. With the globalization of business and increased scrutiny to reduce costs, virtual data rooms are an attractive alternative to physical data rooms. Virtual data rooms are widely accessible, immediately available, and more secure.

As security concerns grow and breaches increase, VDR providers are developing more sophisticated and reliable databases. Initial public offerings (IPOs), audit operations and partnerships, or other businesses that must work together and share information will use virtual data rooms.

Use of virtual data room

Mergers and acquisitions (M&A) procedures are the most common use of VDR. These repositories provide a venue for the due diligence required during deal closing. These business transactions involve numerous documents, many of which are classified and contain sensitive information. Using the VDR is a safe and secure way for all parties involved to review and exchange documents while participating in a negotiation.

Businesses often collaborate with each other to produce and manufacture products and provide services during building construction. Forming and maintaining these business relationships requires contracts and frequent data transfers. A virtual data room provides storage for these contracts and provides ready-made documentation needed for ongoing business partnerships. For example, changes made by engineers to structural blueprints are immediately available to all contractors involved in the project.

Auditing firm practices, compliance and accounts is common practice across all businesses. This process is often a problem because workers must interact with external regulators and regulators. Additionally, many companies today have offices in remote locations and in different time zones around the world.

The use of virtual data rooms allows lawyers, accountants, internal and external regulators, and other interested parties to have a centralized point of access. Providing a central system reduces errors and time. In addition, it provides communication transparency. Depending on the audit type, access levels and permissions vary.

An initial public offering (IPO) is a daunting task that requires a lot of paperwork. As with auditing, transparency is critical. Companies must create, exchange, retain, and manage large volumes of documents. Due to the nature of the transaction, most users will have restricted access, such as “view only”. Copying, forwarding or printing may be prohibited.

Alternative to VDR

While virtual data rooms offer many benefits, they are not suitable for every industry. For example, some governments may choose to continue using physical data rooms for highly classified information exchanges. The damage from potential cyberattacks and data breaches outweighs the benefits virtual data rooms provide. The outcome of such an event can be disastrous if the threatening party has access to confidential information. In these cases, the use of VDR is not considered.

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