Over the past few years, artificial intelligence (“AI”) has raised fears that robots will replace human labor.  However, for those in the private equity (“PE”) industry, artificial intelligence can give firms a competitive edge in the alternative investment space.  AI technology can improve more process-driven functions of PE firms such as: increasing the power to collect, process and distribute information with speed and accuracy to the appropriate parties. 

PE firms are having issues with finding the right investment target with the appropriate valuations.  Developing a solution to managing the deal-making process will help a PE firm surpass their competition.  One solution is utilizing a virtual data room (“VDR”).

What is a Virtual Data Room?

A virtual data room is an online repository of information that is used for storing and distributing documents.  It allows private equity firms to stay on top of their management responsibilities.  Virtual data rooms are used to aid the due diligence process during an M&A transaction, loan syndication, or private equity and venture capital transaction.  Additionally, virtual data rooms can facilitate the deal process from beginning to end (i.e. Sourcing Deals, Managing/Closing Transactions, Monitoring Investments) Some key areas in which VDRs are most useful for private equity firms are in the consistency and responsiveness of information.  For consistency, documents can be updated regularly, providing the vendor full control over data, identifying investment targets and generating valid valuations.  For responsiveness, documents are easily accessible allowing assets to be brought or sold whenever required.

How are Virtual Data Rooms Utilized?

The end goal of a private equity firm is to sell an asset for a profit.  In order to do so, the firm must create a life cycle virtual data room that can aid a company throughout period ownership, purchase, through management and sell.  Authorized users are linked digitally through virtual data rooms (i.e. internal parties and external stakeholders) in a secure environment with live access to the appropriate documentation.  The virtual data room will ensure that all documentation linked to specific transactions are accessible and equip with the latest updates for the authorized users.  In other words, data is securely stored on a server platform and is always accessible to internal/external users based on their permission levels.  A virtual data room provides asset managers full control and ability to stay up-to-date on the latest market conditions.

Importance of Accurate Documentation for Private Equity Firms

Accurate documentation is essential for private equity firms.  During the deal process, inaccurate or incomplete documents can be a major pain point for private equity firms.  The value of an asset must be accurately assessed on all required documentation must be organized in a standardized manner, providing access to important information.  Standardize and sustainable data created through virtual data rooms can create long-term value for private equity firms.

How Private Equity Firms Can Improve Their Value with Virtual Data Rooms?

In order to be steps ahead of the competition and high valuations, private equity firms must utilize document management systems.  A virtual data room will ensure that the stages of an asset’s life cycle (i.e. buying, holding, and selling) is running much smoother.  Virtual data rooms can help private firms make better investment decisions/deals, improve operational efficiency and enhance the transparency amongst key stakeholders in the firm.

The Top Virtual Data Room Providers of 2019

According to DataRooms.org, here are some of the best Virtual Data Room providers of 2019:

1. iDeals – founded in 2004, the company became a virtual data room provider of choice for top-tier financial institutions, investment banks, hedge funds, real estate, and legal global corporations. The platform provides security and collaboration tools which are essential for any global business operating in any industry. Some of the features include behavior tracking, data management, and file organizing tools which are useful during the due diligence phase of the deal.
2. Intralinks Dealspace – established in 1996, their clients are mostly large corporations (i.e. companies listed on the Fortune 100) and focus on large scale deals. On average, the price for Intralinks service is higher than most virtual data rooms.  In addition, to secure data storage and exchange, it ensures smooth collaboration inside and outside an enterprise: the tools offered to simplify with external parties.  The deal-making is the main focus of Intralinks, and it does its best to guarantee support on each stage of the project execution.  Especially helpful throughout the due diligence process for large enterprises.
3. Merrill Datasite – main focus is on dealing with global financial institutions and big names in the business. Many well-known banks and Wall Street players are using DataSite.  Merrill Datasite caters primarily for owners of large deals who are willing to pay for specific features such as multi-layered security, easy data upload, granular user permissions, and 24/7 customer support.  One of the main tasks is to ensure smooth and productive internal and external interaction and teamwork.
4. Brainloop – main focus is to aid throughout the deal-making collaborations. Brainloops provides diverse software that simplifies and facilitates communication between the project participants and guarantee safe information exchange.  It can be used during M&A deals, Biotech licensing, as a solution for financial services.   Brainloop comes equipped with a platform called Secure Dataroom.  Secure Dataroom is convenient and helpful for all deal-makers who seek for a safe environment for information exchange.
5. Firmex – a new player in the virtual data room market, founded in 2006. Some of their clients include Deloitte, PWC, E&Y, Deutsche Bank, and many representatives of investment banks, legal firms, energy, mining, pharmaceutical sectors.  Firmex is most convenient for merger and acquisition transactions as it is equipped with multiple instruments that facilitate communication, speed up diligence, and simplify every aspect of collaboration.
6. Box – known by its strict user access control, automatic indexing, industrial-grade file management tools. Box has a user-friendly interface that attracts many users and a large corporation.  Furthermore, the platform offers a wide range of instruments and provides clients with multiple features that make internal communication and collaboration with external partners smoother and more convenient. 

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