What is a data room?
A data room is a secure space that stores information, usually sensitive or confidential information, and only allows certain individuals to access it. Traditionally, data rooms have been physical rooms under continuous surveillance that contain hard-copy documents. However, recently, most data rooms have become virtual and are hosted on online servers; leading vendors refer to themselves as virtual data rooms (VDRs) and are part of the SaaS industry.
The virtual data room format means modern data rooms can be accessed from anywhere, allow for an unlimited number of approved users, and eliminate the cost of employing human security teams to guard and monitor physical data rooms (while also preventing documents from being destroyed or lost). In this virtual setting, data rooms can be more customizable in terms of access controls, since businesses can control the level of access other users have and place restrictions on users’ abilities to copy, forward, or print information.
We've previously covered data rooms in the context of the debt capital raise due diligence process, and how companies can put together a formal or informal data room during the debt raise process. Here, we'll provide more detail on the data room industry more broadly and highlight a few vendors to consider for your company's file management and security needs.
What is the size of the data room market? Why are data rooms growing in importance and value?
In 2020, the VDR market was valued at $691 million. Moving forward, the industry is expected to reach $1.6 billion by 2026 at a CAGR of 15.12%.
What's behind the continued growth of data rooms? What do they offer that everyday file storage systems don't?
Data rooms are notable for the extent of security they offer and their widespread practical applications. Data rooms significantly diminish the risk of confidential information being shared with unauthorized parties, a capability that other forms of file sharing (think Dropbox and Gmail) do not have.
Data rooms are useful in day-to-day work, as when teams share files across the company; they’re must-haves in high-stakes situations such as M&A and IPO activity, where leaked data could jeopardize a transaction. The key feature of a data room is secure file sharing and storage in contexts where information is highly sensitive. For example, businesses can manage their intellectual property by securely storing their patents or copyrights in a data room. Because data rooms have timestamped audit logs, all user activity is recorded and tracked, so any leaks or unauthorized activity can be investigated down the line.
Additionally, for companies that want to go public, data rooms can serve as the channel for investors to access financial statements, contracts, or any other sensitive documents. In an IPO preparation context, data rooms provide a central location for auditors, attorneys, and accountants to access information, increasing transparency and convenience.
How much do data rooms cost?
Why do companies work with VDRs rather than build out their own secure file storage capabilities?
It turns out that the costs necessary for the upkeep, security, and compliance of data rooms are quite high, and require significant investments in reliable servers, backup systems, encryption, multi-factor authentication, and access controls.
Additionally, data rooms must comply with industry-specific regulations and complete audits, further adding to their cost.
That's why many companies choose to pay for data rooms rather than build out their own solutions. The price of data rooms on the market can go well over $100,000 per year. Factoring these costs into your budget for your debt raise process can reduce the risk of sticker shock down the line.
What are the best data rooms for corporate debt capital borrowers?
We've worked with a variety of data room vendors and believe that there is little meaningful differentiation between leading vendors, from a capabilities perspective. (Finley is vendor-agnostic can work with any data room, since it only needs the final, executed version of a credit agreement.) As such, we encourage debt capital borrowers to select the data room that their prospective lenders are used to working with.
Currently, some of the biggest data room vendors include Intralinks, iDeals, Ansarada, and Merrill Datasite. They are all known for their user-friendly interfaces, ease of collaboration, stringent security features, advanced analytics, and opportunities for customization. Below, we provide a few examples of common vendors we’ve come across, as well as a few prominent customers of each:
Intralinks targets multi-million-dollar industries and companies and is widely used in the healthcare, pharma, legal, and banking sectors for large transactions like M&As and raising capital. Examples of prominent customers include Ares and Morgan Stanley.
iDeals focuses on the finance, real estate, and life sciences industries and is also mostly used in the M&A process. It is known for its accessibility across all operating systems and scalability for companies of all sizes. A few companies that have partnered with iDeals include Accenture and BDO.
Ansarada primarily concentrates on serving large and mid-sized companies, as its offerings, like its AI-powered analytics, fit the needs of large and mid-sized businesses involved in complex transactions, such as M&As and raising capital. Its AI-powered insights is one of its most unique features, as Ansarada claims to be able to predict deal outcomes based on file contents. Examples of prominent customers include Deutsche Bank, Deloitte, and EY.
Finally, Merrill Datasite is also a strong candidate, as its focus is on the financial services industry, and its platform caters to the needs of financial institutions. For example, its offerings are related to M&As, IPOs, and regulatory compliance. Datasite's robust security infrastructure, which includes encryption measures, user authentication, and customizable access settings and permissions, ensures that sensitive financial information is securely protected. Examples of marquee customers include Goldman Sachs, Blackstone, and Houlihan Lokey.
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