Virtual data rooms have never been more important: mergers and acquisitions in 2021 saw the highest annual transaction value in history, surpassing the $2 trillion market for the first time.
It is safe to assume that most of the deals that underpin this figure used virtual data rooms in at least some capacity.
And if projections for global data room sales are used as a proxy for M&A activity, all signs are that 2021 won’t be the last time that the $2 trillion mark is breached.
Revenue generated globally by virtual data rooms is projected to grow from a little over $1 billion in 2018 to $3.66 billion in 2027.
This represents a CAGR of 12.9% over a 10-year period.
Although the figures account for all virtual data rooms - even those not exclusively used for M&A - they point to a growing recognition of the value added by secure data storage facilities and the necessity to transfer data seamlessly between users.
We, at DealRoom help dozens of companies to organize their M&A process. And one of our projects is FirmRoom virtual data room so we have some insights too and in this article we'll share them with you.
What’s driving growth in virtual data rooms?
Virtual data rooms have never been more imp.
1. Increased data generation
The biggest driver of the virtual data room industry is an obvious one: Data generation itself.
The volume of data in circulation globally has grown exponentially over the past two decades and continues to grow at breakneck speed (see table below). Virtual data rooms help to give context to this jungle of data.
2. Growing need for data security
It follows that if organizations the world over are generating, storing, and using more data, they’d better be protecting it.
Facebook is only a $900 billion company because it ‘owns’ and closely guards the data that users share with it.
Data breaches are costly as many large companies have seen over the past few years. Hence, there’s a growing demand for VDRs of all kinds.
The arrival of GDPR as well as other data protection laws are likely to be just the beginning for data protection laws.
These mean that data security is no longer good practice for companies - it’s regulation.
Hence, even companies that hadn’t really considered themselves to be data companies are using VDRs to ensure that they’re covered on the downside should they suffer a data breach.
There’s a growing recognition among companies that it’s one thing to suffer a data breach, it’s quite another to suffer a breach and for regulators to find you had no controls in place.
4. M&A transactions
As mentioned at the outset, the growth of M&A has led to an explosion in VDR use.
VDRs have become ubiquitous in the due diligence process, significantly speeding up the process and in their own way, contributing to faster deals that add to aggregate annual transaction volumes.
5. Increased usage in other industries
Mimicking the growth in financial services, other industries - particularly healthcare - have taken to using VDRs for their own data storage and sharing requirements.
The average cost of a data breach across several industries underlines why companies of all stripes are investing in virtual data room technology.
How can a VDR help a business?
Not only do data rooms help to reduce time waste, and are eco friendly, it’s also a more secure way of storing data. As more advancements in technology are made, the security and efficiency of VDRs only improve.
Virtual data rooms are a priceless means for helping companies to deal with storing and sharing data, mergers and acquisitions, due diligence, and other processes containing sensitive information.
The main purpose of any VDR is to keep, organize and share the most valuable data during a deal in a secured location.
Being able to see who has viewed a document with an audit trail takes away all of the guesswork. M&A teams can use VDR tools as a way of discovering what their clients are most interested in.
From the buy side, businesses are able to examine all the documents to help predict any future risks, pitfalls, and trends.
What are virtual data rooms now?
Virtual data rooms have revolutionized the transaction process in today’s business environment.
With cloud-based technology, people can get instant access from any location, and on any device with internet access.
Secure data management and storage saves large amount of time and money.
Data rooms have evolved to become a tool that helps facilitate an entire deal and not just store information.
While virtual data rooms are used for M&A, it’s also widely used for loan syndication, private equity, investment banking and venture capital across many different industries.
Will the virtual data room market continue to grow?
In 2021, over $1 billion in market revenue was made from about 383 VDR providers.
IBIS World’s 2021 report shows an average of 15% annual growth from 2016-2021. And more than 70% of that revenue was made from the 5 largest firms in the market.
Even with a small number of firms making up a majority of the market, small firms are still doing quite well.
Smaller firms are staying relevant by providing more niche solutions and with the continued use of VDRs, predictions estimate annual growth of VDR providers to be 12%-16%.
With the predicted growth and use of VDRs, it's feasible to expect an increase in investments for VDR technologies.
In January 2017, IntraLinks was acquired by Synchronoss Tech for $821 million. In 2021 Datasite announced acquisition of Toronto-based data room provider Firmex.
With companies and corporate conglomerates continuing to express interest in investing in technology solutions, the VDR market is given a promising opportunity for growth.
While the needs for technology are constantly changing and different sectors find themselves in a constant battle of ebb and flow, the VDR market seems to only be growing.
With constant improvements being made to tailor to company needs, it leads to a promising future for the data room market.
In fact, the global VDR market size is expected to grow to ~2 million by 2022. The increase in business data from M&As is expected to drive the growth.
Which data room should you choose?
In a billion dollar market growing in double digits, it should come as little surprise that there are a host of capable virtual data rooms available.
For our money, FirmRoom, is the best alternative on the market.
In an industry where competitors offer service add-ons where the benefits aren’t always clear to users, FirmRoom emphasizes full price transparency, which has allowed it build a client base that ranges from small consultancies to blue-chip clients such as KPMG and JP Morgan, as well as gain a host of industry awards.