That is why dealmakers and companies focus on secure data-sharing platforms like virtual data rooms. Data room providers constantly improve data protection mechanisms and comply with industry standards to ensure safer M&A deals.
Let’s explore virtual data rooms for mergers and acquisitions and how they make these transactions secure and efficient.
What is an M&A data room?
An M&A dataroom is essentially a cloud storage platform globally used to store and share sensitive documents in mergers and acquisitions, and transactions alike.
A virtual data room for M&As has almost replaced the traditional physical data storage facilities. It is more accessible and secure, which helps in making the transaction more efficient. Virtual data rooms are different and better than traditional data-sharing platforms based on the following reasons.
- Virtual data room vendors are ISO and SOC-2 compliant. These regulatory bodies set strict standards for advanced data protection.
- VDRs allow the administration to fully control the user access level according to their roles.
How do virtual data rooms make M&A transactions safer?
Access to Specialized Talent
“If I had to differentiate VDRs and other data storage tools, I would definitely start with security. Virtual data rooms are way more powerful when it comes to protecting data at all stages of M&A due diligence. VDRs make sellers believe that their sensitive information is safe even if the deal somehow doesn’t turn out to be a success,” says Gilbert Waters, Marketing Specialist.
As Gilbert says, security is the premium difference between VDRs and other options. Here is how data room M&A protects confidential data. In fact, the following must be the benchmarks when you compare virtual data rooms.
1. Data encryption
Data encryption is a strong feature that protects data when shared. Most of the encryption tools allow you to encrypt data when shared.
Virtual data rooms are different and better when it comes to encryption. They employ the latest and strongest versions, like 256-bit SSL encryption, which encrypts data during transit and at rest.
2. Data room entry barriers
More than 80% of confirmed data breaches are caused by stolen or weak passwords. You may set a strong password, but it may still be compromised.
Virtual data room providers use the multi-factor authorization feature to eliminate the effects of stolen passwords. Multi-factor authorization is a feature that requires users to go through two or multiple identity confirmation steps to log in to the VDR.
The user has to provide a one-time generated unique code shared on the user's email or contact number. Some VDRs even require users to answer security questions before giving them access. This eliminates or greatly minimizes the chances of unauthorized entries.
3. Controlled document access
Data rooms allow you to control the flow of information just the way you want. Role-based user access permissions make sure you can allow document access according to users' needs and roles. You can decide which users can share, edit, print, and document, and who can only view the files.
Example
Any M&A transaction involves multiple stakeholders and professionals. A financial advisor only needs to have access to the company's financial data. They usually don't need legal documents, HR files, or other irrelevant information. VDRs allow the administration to restrict financial advisors' access to relevant information only.
You can also limit user access within the documents. For example, if you don't want a user to access a specific page or chapter in a document, you can hide it using fence-view mode.
4. Constant user activity monitoring
It is super easy to track who is doing “what and when” in the virtual data room. Administration can easily track all users’ activities using audit trails. It not only helps track suspicious activities but also prevents data leaks from inside.
Such a detailed presentation of data room activities boosts investors' and stakeholders' confidence. Audit trails also help sellers assess potential buyers' interest in the transaction. They can track which buyer is more interested in moving forward and which one is just wasting time.
5. Compliance
Companies can either develop secure data-sharing platforms that follow industry standards or go for ready-to-use and fully compliant virtual data rooms.
Data room providers nowadays offer region or industry-focused services. For example, Ideals data rooms target the healthcare and financial sectors in the US. That is why the vendor is HIPAA and FINRA-compliant. Vendors serving in Europe comply with GDPR, and those offering services in Canada are PIPEDA-compliant.
