What Does Data Room Mean?
A data room is a secure location that is created by a seller wherein a firm's confidential data is then placed for inspection by the purchaser. The data room is an integral part of the due diligence process, which takes place after a non-disclosure agreement has been signed.
A data room is also known as a due diligence data room.
Divestopedia Explains Data Room
Most buyers wish to conduct an organized assessment of every aspect of a firm prior to acquiring it. To accommodate this, the seller will often place important records and information in a physically secure and continually monitored room, which a team of experts from the buying firm can access. This allows the purchaser to confirm his valuation of the firm and dig out the skeletons (if any) that could pose risks to his investment.
A substantial amount of time and effort is involved in creating a strong and secure data room, as the documents placed there are highly confidential in nature (i.e. copies of financial, legal and business documents). To save on the expenses for the seller (in terms of establishing a data room) and on part of the buyer (in terms of the time and cost that comes with hiring expert analysts), the data room may be created virtually. Because entry to data rooms is restricted, the team of buyers is usually required to access it one at a time according to a predetermined schedule.