Virtuality Check

Dealmakers are increasingly using secure Websites to share confidential data.
Kate PlourdJanuary 1, 2008

The physical grind of M&A due diligence, marked by paperwork and appointments, is increasingly giving way to the use of virtual deal rooms (VDRs), secure Websites that allow authorized users to review confidential data online.

In a recent survey of 357 corporate dealmakers by ACG Merrill, not only did 65 percent say they used such services in 2006 (nearly the same number that reported they had not two years earlier), but 20 percent said they used VDRs in 25 to 75 percent of their deals.

The benefits of VDRs range from reduced travel time to the ease and efficiency of being able to access data with the click of a mouse, says Paul Stewart, chairman of the Association for Corporate Growth. “VDRs help grease the skids on how a deal works and facilitate deal flow,” says Stewart, who started using VDRs in 2004 at his private-equity practice PS Capital Partners.

Paul Hartzell, senior vice president at Merrill DataSite, which provides VDR services, says that while private-equity firms, investment banks, and companies involved in deals of $1 billion or more have swiftly adopted VDRs, middle-market dealmakers are lagging. But as these firms engage in more cross-border transactions, he says, he expects their use of VDRs to increase.

Pros and cons of virtual deal rooms