What is a data room?

The concept of the data room originated in the context of due diligence. Due diligence audits are commonplace across all forms of corporate transaction – mergers, acquisitions and/or the transfer of operations, for example – and in the case of real estate transactions. To begin with, the term designated a physical room where the seller would make all relevant documents available as hardcopies for potential buyers, auditors or consultants to inspect. These rooms were subject to strict security arrangements and could be accessed only by authorized individuals. 

The advance of globalization and the digitalization of business processes have nevertheless rendered physical data rooms increasingly impracticable and obsolete. Since as far back as the early 2000s, virtual data rooms have therefore gradually been taking over from their bricks-and-mortar predecessors.

Due diligence audits are standard practice for mergers, acquisitions and capital procurement measures of all kinds. Financial, legal and tax considerations are only some of the aspects assessed during these audits. Especially in the case of M&A transactions or vendor due diligence (VDD) audits, the scope of analysis is usually also widened to include the market environment, the competitive situation and operating processes. Moreover, analysis of a company's environmental, social and governance (ESG) criteria has for some time been another regular feature of M&A due diligence.

In a virtual data room, all the extensive documentation needed for a due diligence audit can be made available safely and in a clearly structured manner – including balance sheets, contracts, license agreements, documentary evidence for the supply chain, information about the customer structure, the sales structure and any other relevant materials.

A virtual data room (VDR) is a secure Internet-based application to facilitate digital data exchange and online collaboration across corporate boundaries. A VDR allows authorized users to access confidential documents and sensitive data from any location. Virtual data rooms have thus made due diligence audits simpler and faster. But beyond this, other applications too – such as real estate management, construction project planning and client communication – are now enjoying the substantial benefit of having documents available around the clock in a well-structured VDR setting. Ideally, using a digital data room should be intuitive: It should not require prior training and should be well accepted by all users.

In all scenarios, virtual data rooms like netfiles guarantee the best possible protection for secure data exchange. Security measures include the hosting of servers in certified high-security data centers, the use of encryption technologies such as SSL/TLS and AES-256 when transferring and storing data, plus 2-factor authentication and support for passkey authentication when users log in.

Granular access rights enable the data room administrator to closely control which users or user groups can view, edit, download or print out what documents. Particularly sensitive documents can be further protected with watermarks, while confidential passages (including personal data, for example) can be redacted (blacked out). These features are especially important in the context of due diligence audits, where strictly confidential information is made available to a group of potential buyers, auditors, lawyers and management consultants.

Versioning, digital archiving, automated notification whenever changes are made, and powerful search functionality simplify collaboration and project work.

A virtual project room for construction projects enables all parties to access a consistent data set and to centrally manage relevant information. Clearly structured document management provides valuable support for tasks such as planning, management and controlling throughout all phases of construction, while integrated communication tools are instrumental in ensuring that projects are completed on schedule.

In the context of real estate management, virtual data rooms are used primarily for the centralized management and provisioning of documents such as blueprints, purchase agreements, approvals and rental agreements. This allows owners, tenants, administrators and other stakeholders to work together more efficiently and improves transparency throughout the entire project runtime – for both real estate management and during real estate transactions.

Effective board management is critical to the success of governing bodies such as management and supervisory boards in the corporate sector, but also for organizations and associations. A virtual data room supports the central planning, conduct and follow-up of board meetings. It provides functions for producing agendas, managing lists of participants and documenting resolutions. To ensure that all participants are properly prepared, all relevant documents and materials can be made available in advance in the virtual data room. The confidentiality of materials shared in this way is guaranteed because neither IT administrators nor the staff of the data room provider can access this data. In addition, optional security settings can prevent documents from being printed or passed on to unauthorized third parties. Even greater security is added by secure audit trails in the form of protocols that seamlessly document everything that happens in the data room.

For people working from home, in distributed project teams, on the execution of calls for tender or in the context of corporate reporting, a virtual project room or data room provides a simple and secure way to exchange files – even across company boundaries and national borders. In netfiles data rooms, office documents can be edited online, and it is even possible to organize videoconferences straight from the data room. An integrated Wiki function also gives working groups freely definable spaces in which to work together on content – the ideal way to pool ideas and put together specifications, documentation or project memos.