What is a data room in investment banking?
Over the past decade, technology has brought immeasurable change to the world of investment banking. With the COVID-19 pandemic, the established trend towards digitization and remote work was further magnified. Big banking firms are now using tech in more ways than ever.
Who ever heard of drones being used for due diligence? Pure sci-fi, you would think. And yet none other than Goldman Sachs was reported to be doing just that: flying drones to give prospective buyers a better understanding of target companies. Talk about staying in touch with the times!
Other changes, while not quite as fantastical, have had an even greater impact. And that brings us to today’s topic — virtual data rooms.
The concept of a data room is simple enough: an online file repository that allows you to handle large amounts of data speedily and efficiently.
But this apparent simplicity is deceptive. Virtual data rooms not only do everything that their physical counterparts do — they do more. They also do it better. And — very importantly — they do it remotely.
If, as predicted by Bill Gates, 50% of business travel will disappear in the post-pandemic world, you’ll have largely VDRs to thank for that.
What are the main data room investment banking needs?
A key aspect of investment banking consists of M&A deals. An investment bank, acting as an intermediate between a target company and potential buyers, needs a safe space for storing tons of documents. It needs confidentiality, security, and organization.
What a VDR offers
Any large and complex financial transaction needs to be handled with care. To that end, a first-class data room offers:
To help a client make an accurate estimation of the value of an M&A target, an investment bank needs to offer easy access to all of the files made available by the selling party. A VDR allows this data to be structured in a straightforward and easy-to-find manner.
A good data room will offer multiple layers of security, ensuring that sensitive and confidential information is kept in a safe, well-protected environment. Typical security-oriented VDR functions are:
- bank-grade data encryption
- different access levels for users or groups of users
- multiple-factor authentication to prevent accounts being hacked
- alert system to prevent platform breaches
Besides allowing users the ability to bulk-upload files, VDRs speed up the due diligence process by removing the necessity for time-consuming travel and meetings between interested parties.
It’s no wonder that hosting files on the cloud is cheaper than paying for a physical storage location. And when you factor in the economy from less time spent on the road and meeting clients, the savings in flight tickets, accommodation, and so on, get pretty big.
Every operation performed in a data room leaves a digital trace that can later be examined by the VDR admin. As transparency increases, so does accountability.
By speeding up and streamlining due diligence transactions, as well as offering a more cost-efficient solution for file hosting, the use of a VDR can offer a significant increase in an investment bank’s overall effectiveness.
How do you use a data room for investment banking?
Here we’ll take a look at some of the more typical use cases. For each of them, the same advantages apply, as the data room allows you to:
- organize files so they are easy to find, retrieve and scan
- give and remove access permissions to different users as the transaction progresses
- analyze engagement levels to gauge the level of interest of each party
Brokering mergers or helping prospective buyers negotiate a big acquisition — that’s part of the bread and butter of the business. It’s also something VDRs are uniquely positioned to help you with. With a VDR, you can:
- provide better communication/cooperation between the different parties
- conduct effective due diligence processes, ensuring potential buyers get easy access to all the relevant information about a target company
- plan a smooth integration between both sides
- plan and organize the optimal moment for a transaction
When a company goes public through an Initial Public Offering (IPO), there’s naturally a huge amount of paperwork involved.
As an investment bank, working with an IPO operation will require the ability to handle all of this documentation while keeping absolute confidentiality. It’s here that the navigability of a VDR, coupled with high levels of security, are simply invaluable.
For any juridic matters such as litigation or regulatory proceedings, you’ll need a safe place for storing and sharing contracts, agreements, records of transactions, and whatnot. Once again, the VDR comes in handy.
Managing big clients
As the financial advisor to a big corporation or a small government (or a big government), ensuring a transparent, speedy, and effective information flow is key. A data room will provide all that.
Top data rooms for investment banking in the UK
OK, so your bank needs a virtual data room. That much is settled — but which? What is a data room investment banking requirement you should be aware of?
When choosing your VDR provider, find the ones that stand out by looking for things such as:
- certified level of security — certifications such as SOC 2 and ISO 27001 will tell you that the service’s security features have been audited and greenlighted by a competent authority
- accessibility and ease of use — the best providers will not only deliver on things such as navigability and search functions, but will also offer training and support to ensure you make the most of their service
- free trial and custom plans — your ideal VDR will help you understand everything it has to offer during a free testing period. It will also provide tailor-made plans to fit your specific needs.
There are, of course, plenty of good alternatives to choose from, and part of the decision will hinge on your unique needs. With that in mind, here are some of the biggest players in the market.
Our top pick — and for good reasons. iDeals is a well-rounded solution with plans to suit companies of all sizes. The service is guaranteed by some of the most respected certifications: SOC 2, ISO 27001, SSAE 16, HIPAA.
Here are a few of the functions it offers.
- bulk uploads with drag-and-drop feature
- full-text search
- in-document linking
- branded platform — customize your data room with company logo and other features
- encryption (256-Bit SSL)
- multiple-factor authentication
- user/group permissions
- virus scanning
- document expiry — set expiration dates from which given documents will become unavailable
- multi-language compatibility
- mobile interface
- iPad app
- on PC, doesn’t require extra software installation
On top of that, iDeals offers a trial version and prime-level, multi-language support, as well as training to help onboard your team.
An effective data room provider, Intralinks offers essential features for data room investment banking such as:
- two-step authentication and 256-bit encryption
- activity tracking
- integration via API
- compatibility with Windows, Android, Mac, Linux
- file exporting
Intralinks also offers phone and email support, and although users may miss the ability to receive faster, online chat support, the solution provides an overall good value for money.
The recently rebranded Merrill (now Datasite) has good capabilities for the handling of complex transactions such as M&As. With 50 years of experience in the business, they provide most of the usual security resources and a fast and intuitive platform.
Of course, not all great platforms are free of downsides. Datasite may still have a problem with its pricing system, which has been reported by users to lack transparency in storage fees.
A market leader, Dealroom is a user-friendly and secure platform with an ample choice of resources. The service is praised for ease and speed of use, as well as its advanced analytics and collaboration capabilities.
Although a relative newcomer to the market, Sterling Data Rooms is a strong choice, featuring an array of security and usability features guaranteed to satisfy most companies needs. It also provides support in over ten languages. A distinctive feature of the solution is its integration with Microsoft Excel and Adobe LiveCycle.
Hopefully, now you have a good idea of what is a data room for investors and how it can help your investment bank. Processing and sharing information, data protection, and communication – VDRs have you covered on all these fronts.
How about finding the best fit for your needs? Our list above is a good reference point, but remember: nothing beats your own research. So pick your best candidates, read the reviews, try a free demo, and your work will soon benefit from a great new tool.