Why and how to use an M&A virtual data room: A complete guide

According to Deloitte, the due diligence process is a critical part of M&A activity and key stakeholders should have a stake in overseeing the transaction process from an early stage through to post-closing integration.

When performed correctly, due diligence provides important insights into the target company and allows for a more informed assessment of the potential risks and benefits of the transaction. Thus, it is in the company’s interest to facilitate a well-thought-out diligence process and virtual data rooms play a crucial role in streamlining operations for buyers, sellers, and other interested parties. 

Virtual data rooms serve as secure hubs where parties can exchange documents during complex financial transactions. Further, we will elaborate more on the role of virtual data rooms in mergers and acquisitions. We will be covering security and efficiency aspects, as well as a comparison of some of the best data rooms in the UK along with tips on choosing the best virtual data room provider for initial public offering and other business transactions.

What is an M&A?

Mergers and acquisitions (M&A) refer to the process where companies either merge to form a single entity or one company acquires another. The key reasons for M&A are growth, larger market share, cost savings, and access to new resources or technologies.  

There are three types of M&A, according to the Corporate Finance Institute:

• Horizontal, occurs between two companies that operate in similar industries and may or may not be direct competitors.
• Vertical, that happens between a company and its supplier or a customer along its supply chain.
• Conglomerate, which is done for diversification reasons and is between companies in unrelated industries.

Why and how to use an M&A data room

During an M&A process, the seller needs to set up a data room to store confidential information so that potential buyers may review the documents and perform detailed due diligence. In this situation, the data room serves as a hub for the buyer due diligence process that takes place in the second round of the formal M&A sale procedure. Here are some reasons why to use a virtual data room for M&A:

• Security. To protect sensitive data with encryption, access controls, and audit trails.
• Time savings. To streamline document sharing and speed up due diligence.
• Cost efficiency. To reduce physical paperwork, travel, and manual coordination.
• Bidder confidence. To signal professionalism and reduce deal risks.
• Compliance. To adhere to regulations (GDPR, HIPAA, etc.) in cross-border deals.

Overall, a well-organized virtual data room facilitates buyer due diligence, helps keep the sales process on schedule, and inspires confidence in bidders. 

While most virtual data rooms follow certain basic guidelines, they may vary greatly in terms of functionality and accessibility. Here is a standard data room index that shows what sensitive documents are typically cataloged in a data room:

How VDRs promote data security during M&A

When we are talking about the issue of safety of M&A deals, VDRs appear to be the best solution. That’s explained by the fact that they are packed with numerous security features that allow keeping confidential details safe and will consequently ensure peace of mind for investment bankers and other involved parties.

Although the safety of physical data storage has always remained a worrisome issue, M&A virtual data room solutions are highly resistant to security breaches, unauthorized access, or information destruction. In addition, documents needed for due diligence will be kept in one place. This makes virtual data rooms for due diligence highly recommended tools for protecting your company’s data from intrusion.

How VDRs increase efficiency and productivity throughout M&A

The tools used in a data room for mergers and acquisitions often allow to improve and centralize the process of communication, which greatly increases the efficiency of the whole procedure. That’s because the need for e-mails and meetings will be reduced to a minimum.

Data rooms also offer features that enable sellers to exchange sensitive files that may not be safe to share by means of e-mail. Besides, the process of document management can be easily monitored by VDR administrators, and this improves the accountability of the process. As such, the use of digital data rooms continues to be a globally recognized trend in M&A as deal rooms are designed to promote safety and efficiency at the due diligence stage.

This means that the individuals accountable for M&A procedures will have a chance to focus on what matters most of all — getting the deal closed. All in all, if a company wishes to enhance M&A, it is advisable to implement a VDR M&A as it will simplify the procedure considerably.

How data rooms save time and costs during M&A

In the modern-day business environment, it is very important to choose cost-efficient and time-saving solutions. This is especially applicable to the M&A diligence process. In this respect, VDRs save you time at virtually every stage of the M&A. That’s because data room M&A is specially developed to upload documents quickly and store them in a secure place for later use. 

What’s more, they are also easily accessible. You may access your documents without absolutely any travel time but with just a few clicks. This allows saving much time which is especially vital for M&A. As such, the participants of the due diligence will have a chance to concentrate only on what is really important. Saved time may also translate into easier completion of the deal.

On top of that, storage costs are also reduced to a minimum in contrast to keeping documents in physical data rooms. In this respect, physical data rooms appear to be too costly over time, while the use of a virtual data room allows monitoring and easily managing your data and at a fair monthly rate. In this way, you save not only time but also considerable financial resources.

Step-by-step preparation of a virtual data room for M&A

Here is a step-by-step process for preparing the data room for M&A due diligence.

Phase 1: Plan and identify goals

This phase involves identifying the key goals of the data room and selecting a reliable and secure provider. Here are the key steps to take:

Define objectives and scope:

• Identify the type of transaction (e.g., asset sale, stock sale, merger)
• Determine which documents are critical based on buyer expectations (e.g., financial, legal, HR)

Select a secure virtual data room provider:

• Compare virtual data rooms for mergers and acquisitions
• Choose a platform with M&A-specific features (some of the most secure virtual data rooms are Ideals, Datasite, and Intralinks)
• Check for features like bank-level encryption, audit logs, and granular user permissions

Create a logical folder structure

Example:

📂 M&A Data Room

├── 📂 1. Corporate & Legal

├── 📂 2. Financials & Tax

├── 📂 3. Contracts (Customers/Suppliers)

├── 📂 4. Intellectual Property

├── 📂 5. HR & Employees

├── 📂 6. Insurance & Compliance

├── 📂 7. Operations & Assets

└── 📂 8. Management & Strategy

Phase 2: Collect and review documents 

Once the data room is chosen and set up, you can collect the documents required for the M&A due diligence. 

Conduct a compliance check:

• Remove sensitive data (e.g., personal employee info, pricing secrets)
• Ensure GDPR/HIPAA compliance if applicable

Phase 3: Organize & upload the documents

After the documents are gathered, upload them into the data room. You can use the bulk upload function for that.

Standardize file naming and versions:

• Use clear, consistent names (e.g., 2023_Audited_Financials.pdf).
• Avoid duplicates (e.g., Draft_v1, Final_v2).

Set permissions and security measures:

• Role-based access (e.g., lawyers see legal docs, financiers see forecasts)
• Enable watermarking, download restrictions, and NDAs

Add metadata and indexing:

• Tag files by date, relevance, and confidentiality level
• Include a Master Index for quick navigation

Phase 4: Test and launch the data room

After uploading and organizing the documents, it is still early to share the data room with interested parties. First, you need to perform a trial run to see if everything works as it should:

• Invite internal stakeholders (e.g., CFO, legal team) to test access.
• Check:
  • Can they find files easily?
  • Are permissions working correctly?

Phase 5: Launch and manage data room

Provide access to the data room via email to the interested parties. Use phased access feature (e.g., basic docs first, sensitive later). Then, manage the data room:

• Use analytics to see which files are viewed most
• Conduct regular audit trails for suspicious behavior
• Add new documents (e.g., Q&A responses, updated forecasts)
• Archive outdated files to avoid confusion
• Address frequent buyer questions proactively

Check the features of Ideals M&A data room provider

Visit website

Best data rooms for mergers and acquisitions

Here are the top virtual data room providers for mergers and acquisitions, according to the G2 listing:

Documents to include in an M&A data room

Here is the list of required documents to share within a data room:

Legal documents 

• Corporate charters
• Bylaws
• Business licenses
• Permits
• Litigation records

Intellectual property 

• Patents
• Trademarks
• Copyrights
• Domain registrations
• Еrade secrets

Agreements

• Сontracts with customers
• Suppliers
• Joint ventures
• NDAs
• Leases

List of current shareholders, officers, and directors

• Cap table
• Ownership structure
• Board resolutions 

Customers supplier documents 

• Major client contracts
• Supplier agreements
• Purchase/sales terms. 

HR documents 

• Employee contracts
• Benefits plans
• Organizational charts
• Pending disputes 
• Benefits and liabilities (e.g., pensions) 

Finances and taxes 

• Audited financials
• Tax returns
• Debt schedules
• Revenue forecasts 

List of insurance policies

• General liability
• D&O insurance
• Cyber insurance

Current management reporting and business plan

• KPIs
• Budgets
• Growth strategy
• Market analysis
• Other success metrics

How virtual data room services benefit M&As

Modern virtual data rooms have become indispensable, taking the place of traditional data rooms. Further, we explore the benefits businesses can expect when using VDRs for this type of transaction:

Accelerated due diligence

Buyers, lawyers, and advisors access files 24/7 from anywhere. This eliminates delays that can be typical for physical data rooms. With advanced features like AI-powered search and indexing, it is much easier to locate specific documents in seconds. Additionally, Q&A and workflow tools help to structure communication and reduce exhausting back-and-forth emails that can be lost or marked as spam.

According to the Accenture Digitizing M&A report, with virtual data rooms, deals close around 30% faster compared to traditional data rooms.

Enhanced security and regulatory compliance

M&A virtual data room is a secure online repository that safeguards sensitive documents using:

• bank-grade encryption protocols (AES-256 encryption and TLS protocols prevent breaches)
• granular access controls (managing who views, edits, or downloads files)
• audit trails (for tracking every action to see the interest or spot suspicious activities)
• regulatory compliance (for meeting GDPR, HIPAA, SOC 2, ISO 27001, and other industry-specific standards)

Cost and resource optimization

With a virtual data room, there is no need to print the documents, pay fees for physical data room storage, or send documents with couriers. Features like auto-indexing, bulk uploads, and AI redaction cut manual labor, allowing for better resource allocation.

Competitive edge in M&A deals

Virtual data room facilitates a bidding process, so that competitive auctions run smoothly with timed access. Also, an organized VDR signals the company’s preparedness for the transaction. This will attract serious, goal-oriented buyers.

Risk mitigation

Version control feature prevents confusion over draft vs. final files. Secure exit allows to revoke access instantly if a bidder drops out. And disaster recovery functionality provides cloud backups to ensure no loss of sensitive information.

How can a data room help at each M&A stage?

In the early stage of the M&A process, the sellers’ investment bankers work closely with the seller’s legal counsel and selected employees to organize and manage the data room while the data room is continuously optimized and updated with the new information throughout the auction. The aim here is to have the basic foundation in place by the start of the M&A procedure.

During the buyer selection phase, the access to M&A data room is typically granted to those buyers that move forward after the first round sale process. This due diligence includes reviewing charters or bylaws, litigation, regulatory information, environmental reports, property deeds, etc. It is usually conducted only after a buyer has decided to seriously pursue the acquisition.

Throughout the due diligence process, the seller provides potential buyers with access to the virtual data room. Some online data rooms allow users to download documents, while others only permit screenshots that may or may not be printable. Similarly, for physical data rooms, some sellers allow photocopying of documents, while others may only permit transcription.

Data room access may be tailored to individual bidders or even to specific members of the bidder teams, such a limited to legal counsel only. For example, strategic buyers that compete directly with the target may be restricted from viewing sensitive competitive information such as customer and supplier contracts, at least until the latest stages when the preferred bidder is selected.

In the final stages of the M&A deal, the seller investment banker monitors data room access throughout the due diligence process, including the viewing of specific items. This enables them to track buyer interest and take action accordingly. As prospective buyers go through the data, they identify key issues, opportunities, and risks that require follow-up inquiry. The sell-side advisor plays an active role in this respect, channeling follow-up due diligence to the appropriate individuals and facilitating timely responses.

Tips on choosing a virtual data room for M&A

The right data room ensures a smooth, secure, and efficient M&A process. Everything starts with defining key requirements. Before comparing VDR providers, it is important to answer the following questions:

• Is it a small asset sale or a multi-billion-dollar merger?
• How many bidders, lawyers, or advisors need access?
• Is there a need for HIPAA (healthcare), IP-heavy (tech), or global compliance (GDPR)?
• What features are non-negotiable (compliance with specific regulations, bulk download, ES-256 encryption, etc)?

This will help to narrow down the choice of a virtual data room provider. Another important factor in choosing a VDR is pricing. Virtual data room companies charge differently, so it is crucial to pick the best fit for the deal. Here are the most popular virtual data room pricing models:

After conducting the virtual data room price comparison and selecting the pricing model, it is time to evaluate the usability of the data room. Many data room providers offer 7–14-day trial periods to help their clients better explore the functionality and user interface before committing. Some of the most valued features that elevate the usability of a data room are mobile-friendliness, an intuitive interface that doesn’t confuse non-tech users, and 24/7 live chat or phone support.

User reviews are a great source of information. Platforms like G2 and Capterra provide in-depth rankings of the most popular data rooms. For example, on Capterra, users scored Ideals as the best virtual data room. According to the reviews, users appreciate its ease of use and customer service. One user, for example, highlights the advanced security features of the platform:

iDeals is secure and allows us to manage users and specialize each data room well. They’ve added a dashboard that helps us view the status of the data room very quickly, which is important for what we do since we host a large volume of data rooms at once.

Going through all reviews of all the VDR providers can be extremely time-consuming, so it is better to narrow down the choice before diving into the testimonials. When going through the reviews, companies might have questions along the way, such as:

• Does this data room provider have any case study for a deal like ours?
• How do they handle data breaches?
• How long is it possible to access documents post-closing?

Asking these questions during interviews with providers can save businesses valuable time and money.

Key takeaways on the role of data room in M&A

During the due diligence stage of the M&A procedure, buyers check documents of the target company, including financial, legal, HR, and other confidential data. To store and safely share these documents, businesses use virtual data rooms. Virtual data rooms provide a secure place to keep, manage, view, and download all the data required for thorough due diligence.

Beyond security, virtual data rooms help speed up the due diligence process so that all parties can dedicate their valuable time to evaluating the deal rather than chasing paperwork. On top of that, the added transparency and systemized filing allow to build trust between stakeholders and improve decision-making. Overall, a correctly set up virtual data room is a strategic asset in closing mergers and acquisitions deals.

FAQs

What is the difference between mergers and acquisitions?

Mergers and acquisitions are transactions between companies that combine in some form. In a merger, two similar size organizations join together to form a new business entity. In an acquisition, a larger company acquires a smaller company and absorbs the business of the smaller company.

What is an M&A data room?

An M&A data room is a secure online space for file sharing between the sides of the M&A deal that provides enhanced security, accessibility, and enhanced collaboration during the due diligence process.

What to consider when choosing an M&A data room provider?

It is important to consider must-have features (2FA, encryption, watermarking, branding, round-the-clock support, etc), explore pricing models, and check user reviews on reputable rating platforms.