Understanding What A Data Room Is by dataroomreviews

Understanding What A Data Room Is

When investors are looking to buy a company, there are a lot of considerations they need to make. Of critical importance, is to attain an intricate understanding of what they are purchasing. While they might conduct due diligence using their third parties, there is no substitute for the information that the company they intend to purchase has. With this in mind, in instances of business mergers of acquisition, there is a need to explore the various documents that a business has regarding their status as a company and their business dealings. This is where a data room comes in.

A data room, in a traditional sense, is a secure room where all the hard copies of company’s documents are kept for sharing and review with a third party, which in this case is the merging or purchasing party. The data room, which is also known as a due diligence data center, is usually characterized by heavy security and access to the facility is privileged. It is important to note that it is standard practice for a non-disclosure agreement to be signed before the involved parties set up a data room. While data rooms are commonly used when in need of confidential review of a company’s data, they are also used for secure financial transactions, documents exchange, data storage, legal transactions, and other transactions that require a high-level of security and confidentiality.

As part of the security measures, data rooms are located in highly secure locations. Additionally, the facility is continuously monitored to ensure that the documents, which are company secrets (intricate financial data, business document, and legal documents), are not illegally copied or evacuated from the room.

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The purchasing or merging parties use data rooms to scrutinize the other company’s records, thereby unearthing ay skeletons hidden that are necessary to know before making the purchase or merging. Additionally, they use the company documents to determine the actual value of the company involved.

While the expense of setting up the data room falls on the company whose documents are involved, experts conducting the due diligence have to physically go to the facility and conduct all their due diligence in the data center. In the case where there is more than one party involved, for instance, more than one bidder, each party has to schedule a time to privately access the documents. This setup has its own merits and demerits.

However, when compared to the newer version of data room – virtual data rooms, the traditional data rooms seem quite dated, inconvenient, and more expensive. For instance, setting up a highly secure physical data room takes more time and cost too much than a virtual one. Additionally, for the experts involved in the scrutinizing process, all the travels to and from the facility makes it quite inconvenient and inefficient.

With this in mind, while there are instances where data rooms are used (for instance, when all the documents are in physical form), more and more businesses are opting for virtual data rooms.