What Does Virtual Data Room (VDR) Mean?
A virtual data room is a digital compilation of all due diligence documents for a company sale. Due diligence documents are required by a buyer after a letter of intent (LOI) has been signed but prior to closing the transaction. Typically, buyers will send out a due diligence information request to the seller. The seller is then expected to compile the information over the next few weeks in a reviewable format. This information can all be compiled electronically and stored virtually, so the buyer's due diligence team can access from anywhere without having to physically review the documents.
Divestopedia Explains Virtual Data Room (VDR)
Virtual data rooms are excellent tools for buyers and sellers due to the following reasons:
- They show that the seller is prepared;
- They limit the cost and effort to compile the information in large binders with multiple copies;
- They may limit the number of questions that the due diligence process may generate; and
- They can be accessed by multiple parties from multiple access points and can be replicated easily for another buyer if the original buyer falls through.
While it is not required to produce a virtual data room, all sellers should consider this practice given how low the cost of electronic formatting and storage of documents is. Investment bankers like to use VDR's because they can track who has accessed the information. Based on the documents reviewed and length of time spent in the VDR, investment bankers can gain insight into the seriousness of the potential buyers, and which areas of the business might have issues in the due diligence process.