Using Virtual Data Rooms for Investment Banking

9 min read
data room banking, data room finance

In investment banking, there are many crucial activities that involve the continuous exchange of data to seal deals. An investment bank helps a company to go public, raise capital, or find investors. These activities require a seamless process to share relevant data and documents between the interested parties.

Every investment banker knows that the due diligence process is required to successfully go through a Merger & Acquisition (M&A) or underwriting procedure. Virtual data rooms help to solve the problem of wading through heavy documentation and other time-consuming activities that need to be done before these deals are sealed.

What is a data room in investment banking? 

The data room is where essential documents are stored for access to potential buyers, during important transactions such as the M&A. Here, all parties involved in the due diligence process review all the important documentation before a deal is sealed in favor of the buyer or seller, as the case may be. In the case of a Physical Data Room (PDR), the bidders and their representatives are allowed access one at a time to avoid unauthorized access to the documents.  

With virtual data rooms (VDRs), interested parties can access relevant data in real-time, and the sharing party can as well determine the degree to which the document is accessed or used. Many types of data rooms exist for different sectors and have their features uniquely tailored to them. 

However, investment banking data rooms are designed to house data from as many entities that the bank represents, while making them available to all interested prospects in the most secure manner. 

Why are data rooms important for banking operations?

Several activities are carried out in a data room investment banking procedure. Some of these banking operations include the following:

  • Sell-side M&A
  • Buy-side M&A
  • Debt and equity fundraising
  • Raising capital
  • Initial Public Offering (IPO)
  • Loan syndication
  • Bankruptcy and restructuring

Sell-side M&A

Banks represent different organizations in an M&A process. Usually, the sell-side M&A would require setting up the required documents in a data room for easy access to potential buyers. The room allows potential buyers to peruse through important documentation, within a specific period, as part of their due diligence process.

Buy-side M&A

Data room banking is important to the buy-side M&A, as it allows them to carry out the due diligence process to determine if the deal is a worthy investment. A data room allows the representing team to evaluate the documents in a data room, to analyze and determine the profitability of an M&A. 

Debt and equity fundraising

For debt and equity fundraising deals, data rooms are beneficial to help potential investors go through important documentation. With data rooms, they can determine the debt levels, understand potential equity, and determine if a venture is worth the risk.  

Raising capital

Just like in any business environment, it’s important to understand the history and profitability of a company raising external capital. The bank uses a data room to store all important documents, required to answer all probable questions that a potential investor might have.

A data room is a secure place that is used to store privileged data, usually for legal proceedings or mergers and acquisitions transactions. Data rooms are used for storing documents, file sharing, securing sensitive documents, and conducting financial transactions. There are two types of data rooms: physical data rooms and virtual data rooms.

Initial Public Offering (IPO)

The data room allows all the significant documents required for an IPO, to be available to all the important parties. Some of these parties include investment bankers, attorneys, and other document-signing parties.

Loan syndication

Data rooms are important in a loan syndication process as the bank acts as the arranging facility between the lenders and borrowers. In a loan syndication process, different lenders come together to raise a loan facility for a borrowing party. This is often the case when the loan facility requested is beyond the risk scope of a particular lender.

A data room provides the needed information access that helps the lenders to evaluate the extent of the risk and the borrower’s ability to repay the loan. It enables the due diligence team to validate the profitability of a lending party’s venture.

Bankruptcy and restructuring

In a bankruptcy and restructuring process, banks use data rooms to provide access to all acting parties, and facilitate the due diligence process. Creditors, lawyers, banks, trustees, advisers, analysts are key players in the restructuring process. Data rooms hold vital information that are critical to developing an appropriate restructuring process, such as stockholder identification and bond sharing.

It allows analysts to efficiently determine milestones, allocate resources, and determine the best way to liquidate a business or company.

data room finance, data room banking, data room investment banking

How do banks use virtual data rooms?

Virtual data rooms have become essential software for seamless bank processes and have become popular over Physical Data Rooms (PDR). Today, the increase in international cross-border transactions has led to increasing demand for virtual data rooms. They’ve become highly beneficial in cutting costs on data room finance and saving time in banking investment activities.

Virtual data room investment banking has shaped how banks handle investment activities today. Here are some ways banks are using VDRs.

To prepare target and make it attractive to buyers

Several documents are important to successfully sell assets to potential buyers and investors. Data rooms are necessary to facilitate these processes. All vital documents that prove a target’s profitability are uploaded and accessible to the buyers in real-time. With multiple access, the bid for the target can become high and competitive in less time.

To arrange online due diligence procedure

The VDR helps the buy-side to cut costs and save a good deal of time in the online due diligence procedure. It eliminates the need to be physically present in a data room, and other transportation expenses associated with PDRs. Some VDRs are integrated into a meeting management software, hence it also eliminates the dependence on in-person meetings to finalize deals. 

Parties can easily search through documents, using the search feature of a VDR. It also gives sufficient time to analyze the documents provided, reducing the chances of human error that may arise from hasty analysis.  Teams can perform all due diligence activity from the comfort of their space, rather than elsewhere. 

Efficient correspondence, a fair playing field for all potential buyers, and data transparency are some of the important reasons why banks use VDRs.

To simplify the process of collaboration with third parties 

Virtual data rooms help to eliminate the need to duplicate documents for multiple users, possible breaches by unauthorized persons, and the possible cost of hosting potential buyers in a PDR. 

It also increases a seller’s competitive advantage as more potential buyers can visit the VDRs thus increasing the bid price for the target, as in the case of an M&A. With VDR’s intuitive features, like ‘fence view,’ parties can view only parts of documents that are important to them, while every other engagement with the VDR is recorded for all to see.

To get unlimited document access for better productivity

Also, unlimited VDR access for a specific duration can hasten the transaction time than would be required in a PDR. Teams can access documents for longer periods and make productive decisions in a shorter time. This may not be possible with a PDR, as the data room may no longer be accessible after a few days. VDRs can be accessed for longer, and with a 24-hour uptime, teams can work from their comfort zone and at any time of the day.

To enjoy increased security and transparency

The shared files could also be stored and retrieved, as all interactions with the files by both parties would be recorded by the VDR. This would not be possible in the case of a physical data room and may be beneficial, in the case of legal disputes in the future.

What features to consider when choosing VDR software for the financial sector?

There are important features to consider in choosing an investment banking data room and the financial sector at large. The right banking data room software will prioritize the safety of your documents, have intuitive characteristics, great customer service, amongst others.

  • Safety certification compliance

Security of your data is a paramount consideration for a VDR. Ensure that a VDR service provider is ISO:20071 accredited and can provide premium unabridged protection for your data room. Trusted VDR vendors meet a range of global electronic data security certifications.

  • Data access view

The VDR should include a feature that allows you to view who accessed the data room and how they interact with it. It should also allow you to express permission to ‘fence view’ your data and allow for role-based viewing for only concerned parties. 

  • Customer support

You need all the help you can get at any time of the day. The VDR provider should have a track record of effective and timely 24/7 customer support in the case where technical issues arise at any time of the day.

  • Intuitive user interface

Not all users of a VDR will have expert-level tech skills. It’s important that the VDR is intuitive and has a user-friendly interface for easy accessibility and in a short time. If there’ll be a need to train teams on the use of the VDR features, then it must be as basic and easy to comprehend as possible. 

  • Data room storage

The VDR should be able to sufficiently accommodate all of your documents. Having an insufficient space to accommodate all important documents could be costly on your investment banking activity. 

  • Free trial/demo

Quality data room providers offer a free trial option, to allow you to have a feel of the virtual data room experience, so you can understand how the product fits your investment banking needs.

  • Integration

The VDR should seamlessly integrate with other software tools you use for your work. It should be able to sync seamlessly, while making your work easier and faster.

In conclusion, virtual rooms are important for a seamless investment banking procedure. We understand this well, and that is why top virtual data room providers designed to give you the best possible experience. 

  • User management

The VDR should include a feature that allows you to view who accessed the data room and how they interact with it. It should also allow you to express permission to ‘fence view’ your data and allow for role-based viewing for only concerned parties.

You’ll be able to restrict how your data is accessed and control how it is used. It allows you to assign different levels to users, and determine how they view, edit, and download the documents. You can as well create groups of users and determine what aspect of the VDR, each can access and work on.

Virtual Data Room Vendor Ranking

VDR ProviderRating
Citrix Systems4.71
Intralinks 4.66
Merrill Datasite4.59

Compare the top data room providers to find out more


  1. Cross, Frank B., Prentice, Robert A. (2007). “Law and Corporate Finance”
  2. Philip Augar, (April 2005). “The Greed Merchants: How Investment Banks Played the Free Market Game”
  3. Popp, Karl (2020). “Automation of the M&A process: due diligence tasks and automation”
  4. Rhee, R. J. (2010). “The Decline of Investment Banking: Preliminary Thoughts on the Evolution of the Industry”
  5. Jul, 2020. “Investment Banking Scorecard” by Stephen Grocer. The Wall Street Journal.
  6. “Deal Virtual Data Rooms Best Practices” by Nate Nead. Deal Capital Partners, LLC.
  7. Mar, 2019. “Using virtual data room technology in banking and finance”by Sid Jiwnani. Legal Futures News.

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