Where is the Virtual Data Room Market Headed in 2019?
Over the last 15 years, Virtual Data Rooms (VDRs) have become one of the fastest growing and most powerful tools in computing software. They have stripped away all roadblocks between place, time and location, by bringing people together all over the world.
With the need for VDRs growing as time goes on, it’s no wonder that the VDR market has seen an upwards of $800 million in revenue over the past few years. The market for VDRs is at a steady increase and predicted to keep growing.
What is a Virtual Data Room?
VDRs are online data rooms, much like a library or hall of records. Before computers and the internet was so popular, rooms full of filing cabinets were used to physically store all legal and confidential documents. To find a document, you’d have to look through cabinets, files, shuffle papers and hope that the person who used it last put it back where it belonged. This was a huge waste of time for everyone. Hours could easily be spent without ever finding the document that was needed. Even worse, if a fire or other natural disaster struck the room, everything could be lost within minutes.
With time, advancements in technology were made and VDRs became a reality. Thanks to VDR technology, the need to physically store paper documents has decreased significantly and almost been abolished. With the world moving towards a paperless future, one with more renewable resources and eco-friendly, it makes sense that bigger companies are moving online.
How can a VDR help your business?
Not only do VDRs 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.
VDRs are a priceless means for helping companies to deal with 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, you are able to examine all the documents to help predict any future risks, pitfalls, and trends.
VDRs have revolutionized the transaction process in today’s business environment. With cloud-based technology, you can get instant access from any location, and on any device with internet access. Secure data management and storage saves a large amount of time and money. VDRs have evolved to become a tool that helps facilitate an entire deal and not just perform due diligence. While VDR is used for M&A, it’s also widely used for loan syndication, private equity, and venture capital across many different industries.
In 2016, almost $5 trillion was being invested in the M&A sector worldwide.
Growth and statistics
In 2016, over $800 million in market revenue was made from about 240 VDR providers. IBIS World’s 2016 report shows an average of 13.7% annual growth from 2011-2016. 73% of that revenue was made from the 4 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%. 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. With companies and corporate conglomerates continuing to express interest in investing in technology solutions, the VDR market is given a promising opportunity for growth.
So what might the future hold for the Virtual Data Room market?
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 VDR market. In fact, the global VDR market size is expected to grow to 1,895 million by 2022. The increase in business data from M&As is expected to drive the growth.
There are several symptoms that can lead to the disease of deal fever.
One such symptom of deal fever is getting carried away in the heat of the deal. There is a lot of time and effort spent just exploring a potential deal, let along the negotiations involved. Sometimes people spend so much time and effort on exploring and negotiating the deal that they feel is must get done at all costs, while failing to take a birds-eye view in determining if the deal is really the best thing for the company.
Another symptom indicating the presence of deal fever and one that raises the risk of catching it is when certain executives become more excited about the deal and emotionally involved in the outcome than other members of the group. This can lead to inflating the deal’s potential strengths instead of also focusing on potential pitfalls. In a competitive situation, sometimes certain people want to do the deal much more than others for a variety of reasons.
Many M&A teams also use M&A software to help them source new deals. Just because a software is telling you a deal is a good idea, that doesn't mean you don't have to do the proper research.
How to Prevent Deal Fever
Great news! There are a number of proven ways to prevent deal fever and keep your company disease-free. Here are some tips to stay deal fever-free:
Perform More Research Than You Need To. You can never perform too much research on a potential deal, so we recommend doing even more than you think you need to.
Seek The Opinion Of Experienced Deal Makers. Get another opinion from someone you trust that has embarked on similar deals. What do they think of the deal? Seeking another opinion that can evaluate your potential deal without the emotional involvement will help you ensure the deal is truly one you want to pursue!
Know All Of The Potential Risks. Thoroughly evaluating the deal’s potential risks, and involving your team in the process, will help you avoid deal fever. Don’t lose sight of your basic financial calculations! Involving others in the process is essential, as you want to make sure nothing is overlooked and you can remain deal fever-free.
Resist deal fever by not overlooking the negatives that you may not want to see! If you have been the primary person working on the deal, make sure you involve others so they can help assure that you are seeing everything clearly. There should never be one person working on deal flow tracking. Likewise, don’t let personal pressures to get the deal done get in the way of looking at everything objectively. Sometimes, not doing the deal may be in the best interests of the company.
How to Tell When You Have Deal Fever
Do you have a high degree of risk tolerance? Do you have a burning desire to get the deal done, yet something just doesn’t feel right about it but you’re not sure what? If so, you may be catching a slight bout of deal fever.
Having the above feelings isn’t just exclusive to individuals, either. Many companies surveyed believe that their M&A function of getting the deal done is more important than what follows. If you’re in the M&A department, and you’re not performing M&A’s, something must be wrong, right? No, not necessarily. Inherently good deals are difficult to come by and you may have to pass on many of them before you find the right fit.
If deals contain personal agendas or emotions, or your company provides more incentives and encouragement to do the deals rather than not, than these are signs that your company may have deal fever. Recognize the signs so you can avoid deal fever and ensure you are making deals that have the highest chances of future success for your company.
Treatment, Care & Medications For Deal Fever
Below are some treatment, care and medications for this contagious disease known as deal fever:
Treatment Option 1. Ensure your deal team is incentivized for long term success, and not just for completion of the deal.
Treatment Option 2. Have objective, experienced observers review the deal specs, including all of the potential negatives of doing the deal. This way you can help ensure you’re not overlooking potential pitfalls.
Treatment Option 3. Let post-close executives have direct input into whether or not the deal goes through
Medications For Deal Fever. Create clear action steps that are to be taken when considering all potential deals. Create a set of red flags, or things to be looked at more closely when they occur. Finally, a healthy dose of objective observation by people not directly involved in the process will both help prevent and cure this debilitating disease!
A very important aspect in our guide on deal fever is to cultivate a business culture in which you have both risk tolerant and risk averse individuals on the team, with both groups having equal say. When both groups sign off on a potential deal, and it is also reviewed by an objective observer, you know you might have a winner!
Don’t Underestimate the Power of Diet, Exercise & Rest
One of the most important ways to prevent deal fever that is often overlooked is to ensure you have a good diet, and are getting enough exercise and rest. Doing so will keep your mind and body in tip top shape, and will help alleviate some of the pressures incurred from pursuing and evaluating a potential deal.
M&A deals are complex transactions that often go at a very fast pace and can also be emotionally charged, so ensuring you’re eating well, exercising and getting enough rest can help counteract the pressures of working on the deal.
Many M&A management can sometimes lack a truly accountable leader to oversee the process. Having a great leader, coupled with the goal of long term success instead of short term, are the highlights of the best things to do to not get infected with this crippling disease. Set the criteria for success and focus on that more than focusing on doing the deal just to get it over with. Make sure your team is incentivized on long term goals and are not acting out of the fear of “what if we don’t get this deal done.”
If you and your team are currently managing M&A transactions, check out DealRoom's M&A virtual data room and project management software. DealRoom's platform also includes pipeline and integration management, which helps teams organize deals for their entire lifecycle.