What is a 'Virtual Data Room - VDR'

A virtual data room (VDR) is a secure online repository for document storage and distribution.  It is typically utilized during the due diligence process preceding a merger or acquisition to review, share, and disclose company documentation. 

Virtual data rooms are also known as Deal Rooms.

BREAKING DOWN 'Virtual Data Room - VDR'

Virtual data rooms have increasingly replaced physical data rooms traditionally used to disclose and share documents. 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 incidents with breaches increase, VDR providers are developing more sophisticated and reliable databases. Initial public offerings (IPOs), auditing operations, and partnerships or other business who must work jointly and share information will use virtual data rooms.

Uses of Virtual Data Rooms

Mergers and acquisition (M&A) procedures are the most common use of VDRs. These repositories provide a place for the due diligence needed during finalization of the deal. These business transactions involve large amounts of documents, many of which are confidential and contain sensitive information.  Using a VDR is a safe and reliable way for all interested parties to review and exchange documents as they engage in negotiations.

Businesses often work with one another to produce and manufacture products, during the construction of a building, and to offer services. Forming and maintaining these business relationships requires contracts and the frequent transmission of data. Virtual data rooms provide for the storage of these contracts and make readily available documents needed for the continuance of business partnerships. As an example, changes made to the blueprints of a structure by an engineer are immediately available to all contractors involved in the project.

Auditing company practices, compliance, and accounts is a common practice in all business. This process is frequently a problem as workers must interact with external regulators and adjusters. Also, today, many companies have offices in remote locations and around the globe in various time zones. The use of a virtual data room allows attorneys, accountants, internal and external regulators, and other interested parties to have a centralized point of access. Providing a central system reduces errors and time. Also, it provides for communication transparency.  Depending on the type of audit, the level of access and authority varies.

Offering an initial public offering (IPO) is a daunting task requiring an inconceivable amount of paperwork. Like audits, transparency is essential.  Companies must create, exchange, retain, and manage large volumes of documents. Because of the nature of the transaction, most users will have restricted access, such as view only. The ability to copy, forward, or print may be prohibited.

Alternative to a VDR

Although virtual data rooms offer many benefits, it is not suitable for every industry.  For example, some governments may elect to continue using physical data rooms for highly confidential exchanges of information. The damage from potential cyber-attacks and data breaches exceed the benefits offered by virtual data rooms. The results of such events could be cataclysmic if threatening parties accessed classified information.  In those instances, the use of a VDR will not be a consideration.

  1. Virtual Office

    A virtual office gives businesses a physical address and office-related ...
  2. Virtual Good

    A good or product traded in the non-physical realm, typically ...
  3. Mergers and Acquisitions - M&A

    A merger is a combination of two companies to form a new company, ...
  4. Convertible Virtual Currency

    Convertible virtual currency is an unregulated digital currency ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies ...
  6. Merger Of Equals

    A merger of equals is when two firms of about the same size come ...
Related Articles
  1. Small Business

    What Merger And Acquisition Firms Do

    The merger or acquisition process can be intimidating. This is why merger and acquisition firms step in to facilitate the process.
  2. Financial Advisor

    What Are Virtual Financial Advisors?

    The internet has provided a convenient way for financial advisors to offer their services to a wide customer base through virtual financial advising.
  3. Small Business

    The Basics Of Mergers And Acquisitions

    Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work.
  4. Investing

    What Investors Can Learn From M&A Payment Methods

    How a company pays in a merger or acquisition can reveal a lot about the buyer and seller.
  5. Personal Finance

    Investment Banker: Job Description & Average Salary

    Identify what investment bankers do in a typical work day, learn what skills are needed to be successful and understand how investment bankers get paid.
  6. Investing

    Do Mergers Save Or Cost Consumers Money?

    A merger or acquisition can actually be beneficial to the customer - find out how, in this article.
  7. Investing

    A Guide to Spotting a Reverse Merger

    A reverse merger is a type of corporate action that can be profitable for investors who know what to look for.
  1. How does a merger affect the shareholders?

    Explore the impact of a merger and understand how the process affects shareholders of the newly merged firm in terms of stock ... Read Answer >>
  2. What is the difference between a merger and a takeover?

    In a general sense, mergers and takeovers (or acquisitions) are very similar corporate actions - they combine two previously ... Read Answer >>
  3. Why do companies merge with or acquire other companies?

    The reasons for company mergers and acquisitions include synergy, diversification, growth, improving competition, and supply ... Read Answer >>
  4. Why Do a Reverse Merger Instead of an IPO?

    Reverse mergers are often the most cost-efficient way for private companies to trade publicly. Read Answer >>
  5. What are some roles of an investment bank?

    Explore the world of investment banking and discover the various functions investment bankers serve, such as handling IPOs ... Read Answer >>
  6. How to Get a Company's Prospectus

    Obtaining a company's prospectus—or other financial documents—is now a simple online task. Read Answer >>
Hot Definitions
  1. Treasury Yield

    Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
  2. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  3. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  4. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  5. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  6. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
Trading Center