As more and more businesses, services, and people go remote, turn from traditional data rooms to digital software, virtual data rooms (VDRs) have become a valuable cloud solution to ensure efficient and secure operations. For Mergers and Acquisitions (M&As) and due diligence data rooms have quickly proved to be indispensable to lowering costs and speeding up the process.

This powerful virtual data room software allows you to simplify the exchanging of confidential documents with interested parties during the due diligence process. By using security features together with document management functionality you can maximize the value of your data room and get things done faster.

What is due diligence?

A thorough analysis of information and facts related to the financial transactions of the target company is part of the due diligence process. It’s done to shield parties involved from unintended and unforeseen obligations in a potential investment or mergers and acquisitions (M&A) deal. 

Due diligence is the procedure necessary to verify all pertinent financial statements and factual data, as well as all the confidential documents related to the M&A deal or investment process. Due diligence is carried out before a transaction closes to guarantee that the buyer is fully aware of what they are purchasing.

The investigation could be of a financial, operational, legal, technological, environmental, fiscal, or economic nature. Due diligence is required in numerous other circumstances, for example when screening a potential employee’s background or analyzing customer reviews. 

Hard and soft due diligence are linked with incentive schemes. These programs can be used to analyze the cultural impact because they can be discussed with personnel and are based on real data, making it simple to include them in post-acquisition planning.

Soft due diligence focuses on employee motivation, and incentive programs are created to support these motives. The acquiring company can estimate deal success by using soft due diligence to see whether a compensation package can be implemented. It can assist the company in determining whether a compensation program can be adopted to increase the success of the purchase.

What is a due diligence data room?

A virtual data room for due diligence is an online repository for exchanging important documents during M&A transactions. Companies use the due diligence data room to facilitate the assessment process. Virtual data rooms ensure high security and simplify the work with documents. Data rooms guarantee the high security of an online space where all the corporate records and files are organized for a convenient due diligence workflow.

As M&A due diligence is a highly demanding and time-consuming process, using virtual data room software guarantees the process to run more smoothly, reduce administrative costs whilst keeping sensitive documents in a controlled environment.

Virtual data room in M&A

For Mergers and Acquisitions (M&A), an online data room offers an opportunity to create a due diligence data room online and replace the physical deal room.

M&A virtual data room (also known as deal room software) is a secure online platform for exchanging confident data between partners. Data room software ensures secure and convenient business collaboration during mergers and acquisitions. So, Virtual Data Room for M&A is an alternative solution to physical data rooms for online transactions. It accelerates processes and protects corporate documentation from theft and corruption.

Virtual data rooms for due diligence

iDeals Data Rooms4.91
Citrix Sharefile4.72
Merrill DataSite4.66
Firmex Data Room4.54
Clinked Data Room4.41
DealRoom Software4.42
ShareVault Data Room3.89

Key advantages of due diligence data room for M&A

The most important benefits of a Due Diligence virtual data room are the following:

  • Security.
    The best virtual data rooms offer a secure environment for confidential information. They comply with top security standards and certifications, incorporate strong data encryption methods, and offer additional layers for safety like digital watermarking, two-factor authentication, and the ability to view reports on user activity.
  • Accessibility.
    A virtual data room for due diligence offers instant access regardless of one’s physical location and time of the day. This can be very useful and increase productivity when negotiations take place across time zones.
  • Control.
    Most data rooms provide permission-based access ensuring complete control over who and when has access to which documents.
  • Efficiency.
    Uploading, sharing, and reviewing large volumes of documents is effortless with VDR functions like keyword searches, full-text searches, and data room indexes. Multiple people can review the documents simultaneously, ask questions using encrypted chat functions, and keep records of all activity.
  • Cost-effectiveness.
    A due diligence data room costs less than a physical storage space or a deal room. Digitizing documents and going paperless also reduce office costs and increase insurance for data loss.
  • Ease of use.
    Due diligence data room provider offers an intuitive user interface ensuring trouble-free navigation through countless file locations.
  • Customization.
    Online data rooms allow users to customize storage space, software features, and user interface design, add the company’s branding, and even multiple languages to accommodate multilingual teams.

How to select a data room for M&A due diligence?

There are no two identical due diligence data rooms and with demand for M&A data room services progressively growing, the market is becoming saturated with attractive offers. However, not all virtual data room providers are designed with M&A deals in mind.

When it comes to choosing the most suitable data room for M&A due diligence, it is important to know what features to look for.

Data and access security

Security compliance, as well as best security practices, guarantee the safety of you to share confidential documents during the review process with prospective investors or other professionals involved. M&A scenario typically involves various kinds of sensitive documents like financial statements, employee files for the human resources department, contracts, intellectual property, and more. To keep everything safe, look for features like:

  • security compliance such as ISO/IEC 27001:2013 certification (the most comprehensive security certification for providers of virtual data rooms), SOC 1(SSAE 16, ISAE 3402), SOC 2 Type II, FedRAMP, HIPAA
  • two-factor authentication
  • automatic, customizable watermarks on documents 
  • document encryption and remote shred (revoking access even after download)
  • encrypted chat function for secure and efficient Q&A among partners
  • option to restrict the view, print or save
  • modification rights depending on user group or document

Most digital data rooms also offer a possibility to increase security by configuring granular access for the uploaded documents and setting up different levels of access for various groups of users. M&A data room software even allows you to set up several different levels of access for Excel sheets and PDF documents.

Since the whole purpose of a data room due diligence software is to minimize disruptions and costs, also keep an eye out for the following features:

  • absence of plug-ins: a VDR should be accessible through any computer, browser, or mobile device (most modern platforms do not require any extra software, however, there are some older versions of virtual data rooms that still need plug-ins)
  • optimized functionality for mobile devices
  • virus scanning
  • multilingual interface access options

Sometimes, as an additional layer of protection, it is worth considering signing a non-disclosure agreement before granting access to your M&A virtual data room. If relevant, look for data room providers for M&A due diligence offering a stock NDA text that you can adjust for your business.

Document management

Having to organize and navigate through large amounts of documents can be time-consuming and intensive for both parties in an M&A. A well-designed structure is crucial to be able to easily access needed diligence legal files and save time for both parties. To get the best functionality consider features like:

  • drag-and-drop file upload
  • option to convert any file format into PDF before a download
  • labels for categorizing and easier searching
  • automatic index numbering (the platform numbers folders and documents sequentially as they are uploaded)
  • full-text search and multiple search filter options
  • extensive file managing functions like merge, restore, rename, move, etc.
  • automatic email alerts when new documents are uploaded

User management

Virtual data room providers usually provide an opportunity to define granular user permissions — a helpful feature during M&A due diligence processes. To create custom user groups and configure their access, first estimate how many users you will have and what type of roles and access you want to provide.

For example, financial auditors may require access to financial documents, but HR files should not be available to them. Features to consider here are:

  • granular, detailed, customizable user permissions
  • specified permissions for certain file types:
    • Excel documents with restricted viewing without formulas
    • secure viewing with or without formulas
    • secure viewing and manipulating spreadsheets
    • download and upload access to folders, subfolders, specific documents
  • flexible number of users
  • ability to set user access expiration dates
  • access to the user activity log

Speed and availability

Pay attention to how many traditional data centers the M&A data room provider is housed in and what speed is guaranteed. The industry-leading transfer speed is 200 Mbps. Depending on the business sector, downtime can be very expensive.

Based on industry surveys, on average the cost of IT downtime, depending on company size and other factors is $5,600 per minute. To decrease chances of unplanned disruptions, check features like:

  • systems uptime estimate (industry leaders guarantee 99.9% high uptime) 
  • maintenance downtime estimate
  • compensation offered for unplanned downtime

Ease of use

Having to learn a completely new platform could quickly become a burden for your team, slowing down the process and creating extra costs for training. Some VDR platforms are designed similarly to most popular email platforms making it easier for new users. Additionally, consider features like: 

  • intuitive user interface design
  • a mobile-friendly user interface design 
  • the functionality of the Q&A section:
    • option to create an FAQ page, 
    • ability to arrange live discussions and create threads
    • option to assign teammates to certain questions
    • opportunity to address questions to specific experts
    • ability to track question status
  • availability of a trial period (industry leaders usually offer a 14-30-day trial period)

Another useful function for managing complex deals and building your institutional knowledge is an option to download transactions of all communication and resolved questions for future reference and training purposes. 

In case you opt-in for professional training, depending on the needs of your team, check if the provider offers any of the following:

  • live demo walk-throughs of the platform
  • in-person virtual training
  • webinars
  • a written user manual

Technical support

To minimize disruptions and introduce a new platform with confidence, it is worth evaluating what type of customer support service is offered and what suits your needs. 

Most providers state that they provide 24/7 support, but it is important to make sure all performance standards are defined in a service-level agreement (SLA). Look for features like: 

  • 24/7/365 support via phone, chat, and email (industry leaders guarantee 15-minute response time) 
  • multilingual customer support team


A possibility to apply your own color schemes and logo in your data room and in the invitation, emails sent to users gives it a professional and unique look. Look for options to customize: 

  • branding — adding company’s elements of style to the online data room, including the following:
    • logo
    • theme colors
    • custom invitation email for the new users
  • interface and layout for easier due diligence file management
  • terms and conditions of use
  • automatic reports, watermarks, headers and footers of downloaded files

Reports and analytics 

Having access to data can help spot setbacks, act accordingly and overall make better data-driven decisions. Comprehensive audit trails can help monitor due diligence progress and user activity statistics can spot the areas of interest of your prospective partners. 

To take advantage of data produced in your due diligence data room, look for features like: 

  • access to full audit trails with easy-to-use reports broken down by file type:
    • Excel
    • PDF
    • printables 
  • ability to track all actions and changes:
    • changes made in documents
    • permission changes
    • new uploads
    • recent downloads
    • document views
  • option to view statistics and graphs:
    • colorful “heat map” of document viewing frequency
    • the number of pages viewed by a certain user

How to get started with a due diligence data room?

It’s much easier to set up a VDR compared to physical data rooms. Usually, a physical data room requires spending a lot of time on planning, maintenance, and access management. With virtual data room services, all the data is securely located in cloud storage which can be accessed by multiple users. 

Once you’ve decided on the idea to complete the due diligence process for your business transaction, you’ll notice that it may not be done without a few challenges. Here are the simple steps to simplify the preparation of data rooms for the due diligence process.

1. Find the right due diligence data room vendors

The most time-consuming part of setting up a due diligence data room is finding the data room provider that suits your business needs the most. The data room companies vary in pricing, functionality, and use-case scenario.

Everyone has a tendency to base decisions on price, yet money should actually be the last thing to take into account. Instead, concentrate on the unique benefits that each provider may bring to your business’s deal-making strategy. 

The good news is that the next procedures are extremely simple if you locate a due diligence data room with a proactive support team and cutting-edge feature set.

2. Choose a suitable plan

Different virtual data room providers for due diligence charge differently. The best course of action is to choose software that offers services for a set rate. In this manner, you have adequate freedom to control the files, communicate with other users, and complete the entire project lifecycle. 

Choose the package in line with the amount of data you’re wanting to store and the size of your deal. Usually, the cost increases with the number of participants and amount of data.

3. Get a due diligence data room checklist

To gather all required documents in advance and create a logical data room layout, ask your provider for a list of due diligence materials. Of course, you will add, remove, and modify the files as the deal develops. However, it is usually advantageous to start with a pre-designed document flow.

4. Structure the due diligence data room

Create a plan for your due diligence data room using the due diligence checklist. After that, adjust as necessary to reflect the particulars of the deal and your business’s personality.

5. Upload files

Transfer your data once all directories and subfolders are prepared. Pay close attention to the folder names and the sequence of the papers.

6. Invite users

Send out invitations to the due diligence virtual data room after setting up user permission for each deal party individually or in groups. To make sure that everyone will have access to the relevant information and to double-check the security of important documents, utilize a user impersonation option.

7. Update due diligence documents as needed

Your virtual data room is prepared for use. Now, your primary responsibility is to concentrate on the transaction while maintaining control over the data room’s document and permission modifications.

Tips for using virtual data room for due diligence

Using a data room simplifies the workflow during the tedious due diligence process. However, there are some simple practices to help you take the most out of using the data room for due diligence.

Create a data room structure before uploading any files

Make sure you have a data room structure map prepared before uploading any files. Some data rooms offer automatic folder structure which can help you organize sensitive data even faster. This is a good practice for those who are starting out with virtual data rooms. Having a simple detailed structure allows you and your team to effectively navigate through the platform and quickly find everything they need in just a few seconds.

Make sure you assigned the right roles for each team member

Security is the most important aspect of using a data room. That’s why make sure you’re using security features to prevent any data leakage or information theft. Only authorized users can view certain files, and you can see insightful analytics on all their viewing activities.

Invest some time in team training 

Data room software is usually user friendly and has an intuitive interface, however for people that have no background in using virtual data rooms it would be good to spend some time learning how the software works to potentially reduce the amount of errors or possible misunderstandings during the due diligence process. Data room providers offer various options here — from live training sessions to free demos, educational instructions, and more.

How to organize a virtual data room for M&A due diligence?

To ensure a well-prepared data room due diligence, consider following these steps:

  1. Create a list of requirements (due diligence checklist) 
  2. Name your files and folders following a specific file naming system
  3. Create structure with folders and subfolders
  4. Update files regularly
  5. Evaluate the system you have set up by doing searches

Some of the due diligence data room software providers have extensive experience assisting due diligence projects and they already provide professional due diligence data room indexes as well as consultancy services for setting up the platform.

Given the specifics of your mergers and acquisitions due diligence, a VDR software can be set up to incorporate industry-specific standards and requirements for document organization. Coherent document retention can also be critical for sealing the deal.

Data room index is useful for keeping your folders and files organized. A data room index is simply the table of contents of your electronic data room. It lists all documents and folders as they are uploaded and helps sort, locate and organize your files. Having automated index numbering is a significant advantage, as there is no need to create and update file numbering manually. 

Who controls the virtual data room for mergers and acquisitions?

The virtual data room owner (customer) operates as the administrator and has complete ownership and control over the platform. An M&A data room administrator is responsible for setting access permission for all virtual data room users. Depending on the specifics of the M&A deal, access is typically granted to: 

  • internal experts who are usually setting up the structure, upload and review documents or answer questions
  • potential partners and investors who review documents and ask questions
  • third-party experts, outsourced auditors or other organizations needed to participate in the M&A process

Successful due diligence procedure depends on a well-structured and well-coordinated workflow, so laying out involved party roles and permissions is crucial before inviting them to join the platform.

Guidelines updated on February 28, 2023 by Data Room Rating Group