The use of a virtual deal room (“VDR”) has become commonplace in modern merger and acquisition practice, replacing the formerly prevalent document room. The advantages of a VDR include reduced cost; reduced security concerns; accessibility to multiple parties simultaneously and 24/7; reduction in actual deal time; and an electronic data trail establishing who saw what and when. Use of a VDR also reduces the disruption and awkward explanations occasioned by multiple visitations to the Seller’s site by Buyer’s due diligence team.

An important consideration in the deployment of a VDR is the question of who will serve as the gatekeeper to the VDR, determining what information is appropriate for posting and what level of security and access to assign to such information.

In our opinion the Seller’s legal counsel is the appropriate gatekeeper to the VDR. Personnel of the Seller, while more familiar with the information, are typically the least familiar with the deal process and potential legal issues posed by the information. They are also the least likely to have the time, with the additional stress of gathering and producing due diligence information already layered on top of their routine daily duties. And while deal intermediaries are certainly the most familiar with the deal-making process, they are not legal counsel and necessarily familiar with the legal issues posed by the information. A primary concern would be the preservation of client confidential information and privileged attorney-client communications. Generally, once privileged information is conveyed to someone outside the scope of the privilege, the privilege is lost and production of the information may be compelled at a deposition or legal hearing.

The cost of creation and administration of the VDR is customarily borne by the Seller since the VDR is populated with the Seller's information and access is controlled by the Seller. The cost of a VDR can vary greatly depending upon whether the Seller elects to use the services of a third party commercial provider or those of its deal intermediary. In the case of S&K Transitional, the utilization of its proprietary VDR is included in the fee structure with its clients.

The modern deal-making paradigm requires VDR deployment. Deal makers and their clients must become fluent in VDR utilization.

For more information on S&K Transitional Services please contact info@stark-knoll.com.