The Q3 2023 demonstrates that the private equity (PE) deal activity continues to expedite as macro volatility starts to decline and firms get better visibility into interest rate trajectories.
According to Ernst & Young, in Q3, the private equity industry witnessed 93 PE deals with an overall value of $101.4 billion. While the Q3’s deal value is roughly consistent with the Q1 2023, the deals’ number has increased by 63%.
With the growth of PE activity, the industry needs a solution for how to make deals smooth and effective. This article focuses on the private equity virtual data rooms (VDRs), as the main way to streamline the PE deal.
Continue reading to find out what is a private equity data room and how it can benefit the PE deal and get a list of the top 3 data rooms for private equity.
What is a private equity deal?
Private equity is a type of alternative investment that presupposes investing in companies that are not publicly traded.
The private equity industry comprises institutional investors, such as pension funds or private equity firms that accredited investors fund.
The main goal of a private equity deal is for investors to gain outsized returns. For this, they need to make significant investments — private equity funds have different entry requirements that can reach $250,000.
To bring investors returns, private equity firms look for businesses with great growth potential in sales and profits in the next years.
Deloitte forecasts global private equity assets under management to reach $5.8 trillion by 2025. As of 2023, the value of dry powder of private equity companies reached $2.49 trillion globally.
What is a private equity data room?
A private equity data room is a virtual data room software used specifically for the needs of the private equity deal.
| A virtual data room provides secure cloud storage for large volumes of data and confidential documents used during the private equity deal. Besides secure storage, virtual data rooms allow for online collaboration, tracking, and reporting, which significantly adds to the deal’s efficiency. |
What are the best VDRs for private equity?
Now, let’s briefly review the top virtual data rooms to use during private equity deals.
iDeals
iDeals is a virtual data room provider with 15 years of experience. iDeals is known and appreciated for its intuitive interface, transparent pricing, and outstanding customer service. Besides, iDeals offers a top-notch level of security with such features as in-built redaction, 8 levels of granular access controls, and customizable dynamic watermarks. It has over 1,000,000 clients from 175,000 companies worldwide in such industries as finance, technology, renewable energy, healthcare, and production.
⚙️ Top features
- In-built redaction
- 8 levels of granular access controls
- In-app live chat support 24/7
- Customizable branding
- Multi-project management
Intralinks
Intralinks has been in business since 1996 and, since then, has already served more than 4 million users. It has already helped to conduct more than 10,000 M&A deals worth $34.7 trillion. Intralinks is used in technology, life science, law, energy, real estate, and finance. Based on users’ reviews, It’s chosen and appreciated for its ease of use and strong brand name and recognition in the industry.
⚙️ Top features
- Multilingual interface
- 4 levels of granular access permissions
- AI-based redaction
- Sandbox features
- M&A buy-side specific tools
Donnelley Venue
Donnelley Venue is a virtual data room by Donnelley Financial Solutions (DFIN), a Chicago-based financial compliance company. It helps to conduct deals in healthcare, energy, and technology and also assists with franchise management. It’s trusted globally by PE firms, investment banks, startups, and Fortune 1000 companies. Based on the users’ reviews, it’s mostly appreciated for ease of use, security, and streamlined M&A workflows.
⚙️ Top features
- Remote wipe/purge
- Q&A section
- 5 levels of granular access controls
- Single sign-on
- AI-contract analytics
How to boost a private equity deal by using a VDR?
First things first, a private equity data room streamlines the process of the private equity deal.
Now, let’s overview in more detail how exactly a private data room can be helpful during the three main stages of the private equity deal: sourcing, overseeing, and closing.
Sourcing deals
To initiate the deal, a private equity firm first investigates the market and searches for the best investment candidates. Then, they build an investment strategy and review potential targets’ portfolios. This stage presupposes dealing with large volumes of information, and virtual data rooms help to make this process more streamlined and efficient. This is possible thanks to the following features and services:
- Secure storage. Private equity data room enables secure storage of sensitive data thanks to in-built redaction, dynamic watermarking, two-factor authentication, and many other services. Virtual data room providers take data security as their top priority and ensure all the files shared via VDR stay confidential and private.
- Multi-project management. Many virtual data room providers allow for managing several projects simultaneously. This is especially beneficial when a private equity firm sources the deal and has a lot of candidates to review. Just create a separate project for every candidate, and their data will never be mixed up.
- File labeling. For better navigation through all the documentation for review, many data rooms offer a labeling feature. It means that VDR administrators can add certain labels for each file so that they’re easily found later. For example, there can be a “Financials” label for all the files that are connected to the target’s financials.
Overseeing transactions
When the target is identified, the deal starts. The main process of this stage is the private equity due diligence. During private equity due diligence, a private equity firm reviews all the financial, legal, and operational aspects of the target to ensure it meets all the deal’s requirements and is worth investing in. Virtual data room providers ensure that this process is smooth and efficient with the help of the following services:
- Secure document sharing. All sides of the private equity deal can rest assured their data is kept private thanks to the variety of virtual data room features such as granular access controls, IP and time restrictions, access expiration, and more.
- In-built collaboration tools. For an efficient collaboration between the deal’s participants, virtual data rooms offer collaboration tools such as Q&A sections and in-built chats. It allows for timely clarification of any arising issues which significantly accelerates the deal.
- Easy data management. When there’s a need to clarify anything or to find a specific piece of information, it’s easy to do via the search feature inside a virtual data room. The full-text search feature that’s equipped with the OCR (optical character recognition) technology allows for finding any information quickly just by typing the keyword into the search bar.
Closing deals faster
After the successful private equity due diligence phase, the process of deal closure begins. At this stage, deal parties get ready for the contract signing, and a private equity data room streamlines this process with the following services:
- Tracking and reporting. Virtual data rooms allow many reporting and tracking capabilities, such as detailed audit trails. This, for example, helps a target to identify what documents and files get the most out of the potential investors’ interest and thus, react proactively, which can significantly accelerate the deal closure.
- E-signature. Many virtual data room providers offer an e-signature feature, which allows for signing the documents virtually right inside a virtual data room. This can reduce the need to use extra resources for document signing or even visit the office for signing documents physically, and as a result, significantly accelerate the process of deal closure.
- In-built NDAs. Many VDR providers also allow for adding ready-to-sign NDAs into the virtual data room, which any of the deal sides can sign right in the VDR space and proceed with the deal closure.
How can private equity deals benefit from virtual data rooms?
Below, are the main advantages a virtual data room implementation can bring to the private equity deal.
Sensitive information security
The first and foremost benefit of using virtual data rooms for private equity deals is the high level of security they provide. Every modern virtual data room provider takes serious measures to ensure the unconditional security of clients’ sensitive data.
You can find such data security features as watermarking, redaction, or fence view, as well as granular access permissions that allow administrators to fully control who can access what in a private equity data room.
Additionally, modern virtual data room providers ensure they’re compliant with the latest industry regulations and laws such as HIPAA, GDPR, or SOC.
Smooth deal flow
A private equity data room provides a variety of services that ensure a streamlined deal flow. It’s easy to upload large volumes of data thanks to the drag-and-drop and bulk upload feature. It’s also easy to manage all the data thanks to the full-text search, automatic index numbering, and lots of integrations such as Microsoft Office or Google.
Secured collaboration and communication online
Modern virtual data room providers also allow users to efficiently collaborate on important documents. This is possible in the dedicated Q&A section, where you can leave a question to a certain document or its part and a responsible person will answer it as soon as they get notified about this.
Additionally, some providers allow leaving notes and comments on documents and assigning experts. For example, if you have an additional question about the legal aspect of a particular document, you can assign it to the legal specialist, which ensures you get an expert answer.
Interest monitoring
Reporting and tracking services of virtual data rooms allow for tracking the interest of potential investors in certain documents or areas of data, which allows for reacting proactively. For example, this way, a target company can notice investors’ interest in a certain document and check whether it contains up-to-date information and update it if needed.
Tracking features also let private equity firms notice prospective investors’ interest in certain projects and then focus on them more to accelerate the deal.
Ease of use
Modern virtual data rooms are easy to use regardless of the users’ tech background. Usually, you can enter a data room space with a single sign-on (SSO) and use it in your language, since VDRs offer a multilingual interface.
Additionally, all the participants of the private equity deal can access a virtual data room from anywhere since it’s also available for mobile devices: either via a mobile browser or dedicated mobile app.
What’s more, it’s possible to customize a virtual data room using your company’s brand colors, logo, and terms and conditions so that a VDR space is more project-oriented.
Summing up
A private equity data room is a virtual data room used specifically for private equity deals. Such a VDR has all the features aimed at streamlining the deal at each of its phases: sourcing, overseeing, and closing.
Among the main benefits a private equity data room brings to the PE deal are sensitive information security, smooth deal flow, secured collaboration, interest monitoring, and ease of use.
To find the best virtual data room for your private equity deal, explore the selection of top VDR providers on our main page.