Mergers and acquisitions have become the most appealing target to cybercriminals. Eighty-two percent of data breaches occur in the cloud, where M&A parties collaborate the most.

As cybersecurity costs are estimated to reach $10.5 trillion by 2025, experts advise businesses to use more reliable collaboration tools, such as virtual data rooms (VDRs). VDRs help M&A parties avoid multi-million losses and ensure accountability and transparency. How to use virtual data rooms for maximum security? This article uncovers the following:

  1. Five reasons businesses should consider secure data rooms for daily collaboration and M&A transactions.
  2. Eight steps to configure data room security.
  3. Five VDR security measures that protect day-to-day collaboration.
  4. Two reasons why certified VDRs enhance compliance and risk mitigation.

5 reasons why virtual data room security matters

Virtual data rooms are superior to traditional physical data rooms in ease of use, accessibility, and security. Here are five aspects of how secure virtual data rooms facilitate successful M&A transactions:

  1. Prevent data breaches. VDR features shield confidential data from phishing, ransomware, compromised credentials, and other security issues. 
  2. Minimize data breach risks. Over 39% of data breaches occur when companies work in multiple environments (IBM). VDRs are designed to execute M&A in a highly secure online space, thus reducing data breach changes as opposed to disconnected workspaces and emails.
  3. Reduce data breach costs. Data breaches are 17.5% more expensive when affecting multiple environments (IBM). Data rooms make it easier to contain data leaks and reduce potential costs.
  4. Ensure regulatory compliance. Noncompliance with regulations, such as ISO 27001 and HIPAA, adds ~ $220,000 to the data breach cost (IBM). Data rooms are ISO, HIPAA, GDPR, and CCPA certified, allowing businesses to collaborate in highly regulated industries like healthcare.
  5. Enable enhanced data control. Data rooms enable role-based access to content. It allows businesses to enforce document rights and permissions and restrict selected users from files and folders.

8 steps to use virtual data rooms for maximum security as an administrator

VDR administrators have ultimate content rights. They can also configure security settings for VDR projects. Here are the eight ways admins can ensure data security while using a virtual data room:

  1. Configure multi-factor authentication
  2. Add trusted domains and IP addresses
  3. Schedule email verification
  4. Integrate single sign-on (SSO)
  5. Enable granular access permissions
  6. Enable watermarking
  7. Enable user security impersonation
  8. Configure scheduled reports

Configure multi-factor authentication (MFA)

Multi-factor authentication requires users to input two sets of credentials during authorization. Leading VDRs support multiple second-authentication factors, such as SMS, authenticator app codes, and recovery codes.

Significance: MFA protects VDR accounts from intruders even if users’ emails and passwords get compromised.

Add trusted domains and IP addresses

VDR admins can enable domain and IP-based access to the data room. This security feature limits VDR access to specified IP addresses and domains only. Traffic from non-specified domains and IP addresses gets blocked.

Significance: IP and domain allow-lists make it impossible for intruders to access VDRs even if they bypass MFA.

Schedule email verification

Admins can force users to confirm email access. When enabled, this feature sends confirmation requests to users’ emails if they log into VDR. Admins can configure email verification frequency and exclude selected emails and domains from the verification procedure (trusted emails and domains).

Significance: Organizations can verify the authenticity of employee emails and minimize the likelihood of email-based cyber threats.

Integrate single sign-on (SSO)

Secure data room services support single sign-on (SSO) integrations, including but not limited to Okta, OneLogin, and Azure AD. SSO allows users to log into several systems using one set of credentials.

SSO prevents password fatigue (69% of internet users reuse passwords for multiple services) and is more secure than regular credentials. With most data rooms, admins can contact customer support to enable SSO.

Significance: SSO minimizes attack surfaces and reduces phishing risks for VDR users. Also, users can access different VDR projects more conveniently.

Enable granular access permissions

Granular access permissions control who can access content inside the data rooms. Admins can configure permissions for user groups, folders, and files. 

Data rooms feature several levels of access permissions, such as viewing, printing, downloading, downloading encrypted versions, uploading, etc. To apply permissions, admins must create and populate user groups.

Significance: Access permissions protect sensitive data from malicious use and breaches driven by human error.

Enable watermarking

VDR admins can configure the watermark display upon printing, viewing, downloading, and other actions. Watermarks are hard-coded into files and cannot be erased. Administrators can configure color, opacity, text details, and other attributes of watermarks.

Watermarks settings
Significance: Watermarks deter unsolicited content distribution and identify the source of unauthorized actions.

Enable user security impersonation

VDR admins can enable user security impersonation to double-check permissions and security settings for selected user groups. Admins can see content as other users to ensure these collaborators only have access to files and folders they are authorized to work with.

Significance: The “View as another user” functionality reduces system misconfiguration errors, which are the source of vulnerabilities in 73% of organizations.

Configure scheduled reports

Data rooms log all events within the system, such as logins, document actions, Q&A, comments, settings changes, etc. Leading VDRs record over 60 action types to promote maximum accountability and transparency of M&A workflows. Admins can configure scheduled activity reports to enhance user accountability.

Report frequency settings

5 ways data rooms secure daily collaboration

VDRs ensure top-notch security during day-to-day collaboration, due diligence, and complex transactions. Here are the ways non-administrative users can collaborate securely:

  1. Document redaction
  2. Communication inside the VDR
  3. Multiple MFA options
  4. IRM security
  5. 3 best secure VDR practices

Document redaction

Sell-side and buy-side parties can protect sensitive data using file redaction. A virtual data room solution allows users to obscure and delete sensitive information from documents.

Document redaction
Significance: It helps organizations control and retain document-sharing privacy while conducting business transactions. Dealmakers streamline the due diligence process and reduce data breach risks.

Communication inside the secure virtual data room

Virtual data rooms offer Q&A (questions and answers) workflows, task workflows, file attachments, comments, discussions, and text notifications. These tools help deal parties share confidential files and sustain secure communication throughout the M&A lifecycle.

Significance: A virtual data room allows deal parties to reduce risks of phishing, malicious links, spamming, email spoofing, and other issues typically associated with regular communication channels.

Multiple MFA options

SMS is the default MFA option in many VDRs. While SMS verification is safer than a password, it is prone to SIM swapping. A cybercriminal increases their chances of intruding into a deal room if they intercept a VDR user’s SMS code.

That is why VDR users are strongly encouraged to add more MFA options (available in personal security settings). The following second factors are safer than SMS:

  1. Authenticator app. Google Authenticator, Authy, or Microsoft Authenticator are popular choices. The app generates a time-limited code that you can use to log into your VDR account.
  2. Recovery codes are generated by the VDR system. Users can view recovery codes in their personal security settings. Recovery codes are safer than apps and SMS because users can store and access them offline.
Multiple MFA options
Significance: Extra verification factors allow users to recover access to their accounts in various incident scenarios.

IRM security

Information rights management (IRM) security applies to Word, Excel, and PowerPoint files and allows users to download encrypted versions of documents. Encrypted files have the following security benefits over originals:

  • Require authentication before opening. Users must confirm identity before opening encrypted documents using either the first (password) or the second factor.
  • Retain access control. Access to encrypted files can be revoked manually or automatically upon expiry.
  • Retain role-based access permissions. Editing, copying, and screen capturing are disabled in encrypted files unless allowed by admins.
  • Secure file storage and sharing. Excel formulas can be disabled in encrypted Excel files.
Information rights management
Significance: IRM security prevents malicious modifications, unsolicited copying, and sharing of downloaded documents. It also prevents data breaches in lost or stolen devices.

3 Best VDR practices promoting secure file sharing

Data room software employs the following best practices to promote secure file sharing:

  • Multi-layered encryption. VDRs use advanced 256-bit data encryption at rest and in transit. Some VDRs also encrypt data storage using VPN networks, further enhancing the security of files.
  • Redundant infrastructure. Distributed data centers with uninterrupted power and anti-disaster features can withstand significant physical damage.
  • RAM storage. Many VDR providers store data in random access memory (RAM) rather than on hard drives, which reduces data breach risks.
Significance: The following features make company data resilient to physical threats, brute-force cyberattacks, malware, and interception. They ensure data loss prevention in the most dangerous scenarios.

How certified VDRs enhance security and compliance

VDRs typically have the following certifications:

  • GDPR. General Data Protection Regulation (GDPR) regulates access controls,  encryption,  integrity, and other security aspects of customer data in the EU.
  • ISO 27001. Standard 27001 by the International Organization for Standardization (ISO) regulates how businesses implement information security systems.
  • HIPAA. The U.S. Health Insurance Portability and Accountability Act (HIPAA) regulates the privacy and security of handling health information.
  • CCPA. The California Consumer Privacy Act regulates data collection, use, and limitations for California businesses and consumers.
  • LGPD. The Brazilian General Data Protection Law is the GDPR’s equivalent that regulates data privacy for Brazilian businesses and customers.
  • SOC 1/2/3. The System and Organization Controls (SOC) standards regulate security, data privacy, and financial reporting controls.

Certified VDR providers validate the robustness of their security systems with the world’s best security standards. Businesses may select trusted data room providers for M&A transactions and daily collaboration for the following reasons:

  1. Regulatory compliance. Certified data rooms are an attractive strategy for businesses to comply with increasingly complex security regulations. By handling data in VDRs, companies protect themselves from data-related regulatory issues.
  2. Greater risk mitigation. Certified VDRs undergo regular vulnerability tests, ensuring continuous data protection. As a result, data rooms safeguard business document storage from evolving threats.

Key takeaways

  • Virtual data rooms provide unmatched security, transparency, and accountability to business transactions and daily collaboration.
  • A secure data room uses granular access permissions, SSO, trusted IPs and domains, watermarking, View As functionality, and activity reports to enhance business security.
  • Document redaction, IRM security, MFA, encrypted communication, and redundant infrastructure keep daily collaboration away from cyber threats.