Virtual Data Rooms (VDRs) have been around for about 25 years. They are a secured online repository for document storage and exchange. They are used in many corporate investments or for M&A transactions. During the transaction process, VDRs solve the problem of balancing between providing openness to information while at the same time limiting the access to those on an insider list. Typically, the sell-side provides the information and then the buy-side gets access to the information during a specific timeframe. Once the deal is closed, VDRs act as a repository with all the ‘known’ information to the Buyer that influence the reps & warranties and potential specific indemnities. Examples of VDR players are: IntraLinks, Ansarada or Dealroom.
With the rise of AI, a lot of added services leveraging AI are now being provided by VDRs in this article we highlight some of the most common ones. It is important to note that the AI features of VDRs are mainly focusing on the needs of the Seller as they are the ones paying for the VDR instance as part of the deal process.
1. Privacy redacting
A popular functionality is streamlining the redaction process by the Seller. Redacting is a vital part of due diligence. It ensures that Personal Identifiable Information (PII) is made non-readable to ensure the process is in line with confidentiality and more importantly privacy regulations. This is a time-consuming exercise prone to errors when performed by humans. Many VDRs provide this functionality as a (paid) feature, most of them use some sort of AI to automatically perform the task of redaction.
2. Categorisation & Indexation
Artificial intelligence can significantly enhance the functionality and efficiency of virtual data rooms. One key integration of AI in VDRs is through automated document categorization and organization of the data associated this is typically performed through Natural Languages Processing algorithms and increasingly also Large Language Models (LLMs). This provides an easy to browse-through index or table of contents of the dataroom.
3. Buyer dynamics & best candidate match
User analytics can offer valuable insights into Buyer behavior within the VDR. By tracking and analyzing patterns, AI can identify which documents are viewed most frequently, indicating areas of interest or concern. This helps companies to better understand stakeholder priorities and streamline their responses accordingly. Some VDRs claim that by analyzing these patterns they are able to forecast with significant accuracy which buying party is the most serious candidate and thus with which party to engage the most as a Seller.
4. Increased security through user behavior analysis
Security is another critical area where AI can enhance VDRs. AI-powered tools can detect unusual activity, such as unauthorized access attempts or irregular download patterns, and alert administrators in real-time, thereby preventing potential data breaches.
5. Regulatory compliance red flag report
AI can assist in ensuring compliance by automatically identifying and flagging documents that do not meet regulatory requirements.
6. AI Search
Many VDRs provide keyword search, however this has clear disadvantages as you want to have contextualized search. The recent evolutions in RAG (Retrieval Augmented Generation), a subfield of Large Language Models (LLMs) makes such contextualized search possible near real time which saves lots of time for lawyers, analysts and the Buyer as the risk of missing important clauses, information or datapoints due to the use of a different keyword decreases significantly.
Conclusion
AI is clearly on the verge of revolutionizing the way investors and companies engage in M&A processes. VDRs are great facilitators to help to transition from the usage of shared folders to an AI-enabled deal process for Sellers and Buyers, however most functionality is focused on the sell-side’s needs.
If you’re interested in how AI will transform the due diligence process for Buyers, check out this article: https://www.structize.com/post/m-a-due-diligence-with-ai-from-months-to-weeks
or, book an intro call to learn more about Structize AI:
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