By Tony Bellagamba on Dec 19, 2017 9:23:00 AM
Everyone loves to be "wined and dined" by a VDR salesperson, but does booze and boxes takes away from investment in data room security?
In recent years, the integrity and security of M&A due diligence within virtual data rooms has decayed as a result of traditional virtual data room providers emphasizing investment in “wine and dine” sales over data security. The virtual data room is still far and away the best medium through which to conduct M&A due diligence but investment banks and companies engaged in M&A must be careful where they choose to host and share their data, as some virtual data room providers “buy the business” at the detriment of security.
This significant spend on happy hours and sports tickets by legacy VDR providers has shifted the risk-reward balance of M&A due diligence in the wrong direction, as investment in beer and luxury boxes takes away from investment in security. Companies engaged in M&A transactions and the Investment Banks that represent them must put the emphasis back on security and discard those providers whose value proposition is essentially “We’ll buy you beers and entertain you.”
When investing in a virtual data room the decision must be made solely on the basis of which provider can best protect data. A virtual data room decision should never be made because of sports and concert tickets. Yankees box seats won’t save the jobs of that company’s employees if sensitive information falls in the hands of a competitor and is then used to gain a competitive advantage. Front row seats at the Jay-Z concert won’t prevent that company’s information from being passed around the market like a hot potato.
So why would companies engaged in an M&A transaction place such a high priority on confidentiality and security but then simply glaze over the very technology that holds all of that sensitive information? Why would someone choose a virtual data room because of free perks when the platform’s entire reason for existence is security?
The answer is that the legacy VDR giants of the world want you to buy based on beer and sports tickets because their security is not worthy of an investment.
By distracting the buyer with big wallets and flash they take the light off of their biggest weakness: data security. Did you know that one of these market giants cannot even prevent a print screen function? That alone renders the data room completely useless. Others outsources their service, which essentially means they are outsourcing security. Most customers couldn’t even tell you the security features of these providers because the sales professionals responsible for telling them are too busy paying the bar tab.
The truly secure virtual data rooms will consult you on your process and work as an extension of your team.
They emphasize data security over sales numbers and the bottom line because they view the customer as a true partner. If the customer fails, they fail. On the other side of the coin the “buy the business” providers will simply send a blind proposal over and then invite you to the bar. They do so because they have no other tools at their disposal. Brand name recognition and “marketing” spend is how they survive and thrive.
But in today’s world sports tickets and cocktails won’t protect your data. Just ask Sony and Home Depot. The only thing that will protect your data is security and thus security is the only thing that should matter when investing in a VDR. The emphasis MUST be placed back on security.
Learn more about virtual data room providers and what to look for when choosing one.