VDRs, virtual and physical data spaces

In order to review the documents, prospective buyers will usually put together a team of experts, each of which will concentrate on individual sections of the data provided. Typically, both internal employees from the buyer company, as well as external consultants, such as lawyers, tax consultants, auditors or strategy consultants. For international teams, the difficulty is often to bring all members together in the same place for a limited time. 

This problem is eliminated in virtual data rooms, since the access to the information via the Internet. In addition, virtual data rooms allow multiple prospects a simultaneous and even longer examination. The problem of scheduling is thus eliminated, but also the direct communication of the audit team is limited.

• Another advantage of using virtual data spaces is the ability to index documents so that you can use different tools such as: B. search functions certain topics, keywords or phrases in documents can be found easily and quickly.

• data volume

• number of users

• Period of use

For a medium-sized company may be incurred here monthly costs in the amount of several thousand euros.

And yet, a virtual data room can tend to increase the efficiency of the vendor by providing support and data maintenance on the central platform. Conversely, if only a handful of prospective buyers are involved in the transaction process, a physical data room will generally be more cost-effective and moreover ensures more direct contact between the seller and the buyer. This point should be given corresponding importance in terms of the sales aspect of the transaction.

• An increase in transparency is an advantage for both sides. In addition to the exceptionally required provision of the Dataroom content as an annex to the sales contract, all actions in the Dataroom (uploading or deleting of documents by the Seller, viewing, copying, downloading of documents through the prospective buyer) electronically documented advantage. Accordingly, it can be reconstructed when documents were in the data room and who looked at them. In case of later disagreements between the buyer and the seller regarding the disclosure of relevant documents, it is thus easy to clarify the situation.

• In certain situations, the electronic records of the prospective customer’s data room activities may also provide the seller with insight into how each party is doing. The content conclusions, the prospective buyers draw from their audit work, remain unknown, yet show the particularly high activity of all users in one or more areas where the audit focus. This can be an advantage for the seller, especially during subsequent contract negotiations.

• Also in terms of communication, there are differences between physical and virtual data spaces. If questions are collected in forms in physical data rooms and then answered in writing or question-and-answer sessions, there is usually a so-called Q & A function (Questions and Answers) in a virtual data room. It is an electronic messaging system where questions are asked and automatically sent to the seller. The seller’s answers are then sent back to the prospective buyer and the entire process is documented.

Advantages of the physical data space

From a “traditional”, communicative point of view, the technical and procedural advantage of the virtual solution can be detrimental, as the physical data room shows its strengths: It offers the possibility of personal support for the prospective buyer through the seller’s advisors.

As a matter of urgency, questions may be clarified, or due diligence findings must be placed in the right context – before they develop momentum on the part of the prospective buyer, which may be more complex, but it may well be worthwhile: from our practical experience, often an early objection treatment prevents the escalation of possible problems.

The communicative disadvantage for the buyer in terms of communication in virtual data rooms is also the isolated operation of the due diligence team:

  • The team members are not sitting here just like in a physical data room together. So can questions or critical
  • Points are not discussed directly in the team. In virtual data rooms, the buyer’s due diligence officer must ultimately ensure communication.
  • Last, but not least, the topic “security” mentioned above represents a not insignificant risk in the use of virtual data rooms. Although it is basically the case that one can break into a physical data room and steal data, the technical possibilities are one virtual data space for data theft or abuse much larger (copying data, screenshots, etc.) There are probably a variety of security devices (restriction of copy, print and download options), but unfortunately, there are also electronic tools to bypass these security devices.