When it comes to confidential data transfers for M&A and other types of corporate dealmaking, virtual data rooms (VDRs) have become an invaluable tool for corporations, investors and other entities that need to securely share large amounts of information. The two major types of deal rooms have different use cases. Buy-side VDRs and sell-side VDRs each have their own unique features and benefits that make them the optimal choice for different use cases. In this post we will explore the difference between these two types of VDRs and how they fit within the overall dealmaking process.
Buy-side VDRs are designed specifically to help companies that are in the process of acquiring something such as a business, real estate, or intellectual property. They provide a secure platform to store and share important documents that will be used for due diligence during the purchase process. Buy-side VDRs offer features like document control, data encryption, and secure access for authorized personnel. They may also provide document search and comparison, audit trails, and reporting tool features. Modern VDRs – such as the one in the Midaxo platform for corporate dealmaking – include project management capabilities to manage the review process and may include advanced automation for inputting, categorizing, and suggesting next best actions for each document. The confidential information stored and shared in buy-side VDRs usually includes financial information, contracts, and other documents relevant to the due diligence review during the purchase process.
Sell-side VDRs, on the other hand, are designed for companies in the process of raising funding or selling a part or the whole of their business. They provide a secure platform to store and share important documents related to the sale process in a centralized deal room. Sell-side VDRs may include features such as data encryption, document control, and secure access for authorized personnel. They may also provide capabilities like those of buy-side VDRs such as document search and comparisons, audit trails, and reporting tools. While these VDRs may include some of the same information as the buy-side VDR, teams will also store confidential data for facilitating the sale process, such as product information, product specifications, and price lists.
Buy-side VDRs are an integral part of the end-to-end dealmaking process for M&A — finding acquisition targets, evaluating targets during due diligence, and integrating target companies post-acquisition. For serial acquirers, the buy-side VDR may become the repository for due diligence documents from multiple acquisition targets over time. Those same documents may be very valuable reference sources for the post-acquisition integration team. The ability to lock the deal room repository for a specific deal when the acquisition closes plus the ability to limit document access based on team member roles can be critical for audit and compliance as well as for document sharing. This role as a persistent document repository is typically different from a sell-side VDR which is usually taken down following a funding or acquisition event.
In conclusion, buy-side and sell-side VDRs are two types of virtual deal rooms that are designed for different purposes. Buy-side VDRs are used to facilitate the purchase process, while sell-side VDRs are used to facilitate the sale process. The buy-side VDR may serve a critical role as a document repository during the due diligence as well as the post-acquisition integration process and for future audits and learnings. Both types of VDRs provide features such as document control, data encryption, and secure access for authorized personnel, but they are used for different purposes. By understanding the differences between these two types of VDRs, companies can make an informed decision when it comes to selecting the right VDR for their needs. To learn more about the Midaxo buy-side VDR and how it can benefit serial acquirers, please visit our product page or download our Due Diligence Guide.