Digitalization pace makes businesses constantly look for optimization opportunities. According to Deloitte’s 2025 M&A Trends Survey, dealmakers use technology of any kind at every stage of mergers and acquisitions (M&A). For instance, due diligence is already digitally enabled for almost 80% of surveyed professionals. Financial, tax, and legal teams use technology to review M&A documents, effectively collaborate over them, and ensure compliance.
But what matters for dealmakers is the security of their sensitive data. This is especially relevant for the legal due diligence, when lots of contracts and confidential files need to be shared and reviewed by third parties.
One of the most common digital tools that can guarantee legal data security during M&A is a virtual data room (VDR).
In this blog post, I will explain what a virtual data room is, the benefits that virtual data room solutions bring to the legal due diligence process, and the essential features that vendors should look for.
Let’s start!
What is Legal Due Diligence?
Legal due diligence examines the target company’s legal standing before proceeding with a deal, such as a merger or acquisition.
It is a component of the larger due diligence process. It helps prospective investors or buyers ensure that the business they are working with doesn’t have any unstated risks that could affect the outcome of the deal or result in unpleasant surprises down the road.
During the legal due diligence, M&A teams typically review documents such as:
- All the corporate documentation, starting from the ownership structure
- Contracts with employees, clients, vendors, etc.
- Intellectual property rights
- Documents about regulatory compliance
- Litigation history
- Employment policies
Challenges in Traditional Legal Due Diligence
Naturally, the process of legal due diligence might come with certain challenges and roadblocks. For instance:
- Chaotic document sharing
Using emails, charred devices, or traditional cloud storage solutions without appropriate file structuring might lead to simply missing important documents and an inability to trace the latest versions. It can all result in a distorted view of the company and, therefore, wrong decisions. - Security problems
Do you know that, on average, companies lose about $4.9 million per single data breach? Besides the financial losses, can you imagine the outcomes of confidential legal files revealed to the public? It might not only impact the company’s operations and reputation, but even destroy it. That’s why data security during legal due diligence is essential. - Poor collaboration between teams
The legal team should be able to effectively collaborate with other M&A participants to achieve results. And it’s often hard to do when the M&A team uses lots of different tools. People might miss the opportunity to fully grasp the context or important discussions. - No ability to trace the actions
When M&A participants can’t fully understand who views what during due diligence, it might significantly complicate the whole process and the outcomes. What’s more, it might put data security at risk, as they’re just unable to timely notice unusual activity. That becomes even more important, amidst cyberattacks on law firms jumping by 77% last year.
All these challenges can be effectively addressed when using virtual data rooms for due diligence.
What is a Virtual Data Room, and How Can It Help?
A virtual data room is a safe online location for exchanging and keeping private documents and sensitive data of organizations.
By nature, it might seem similar to traditional cloud storage solutions. But virtual data rooms offer much more than that: they ensure an enhanced level of security, which is essential during such processes as M&A and due diligence.
A due diligence data room has all the functionality to ensure the process of legal file investigation is effective and secure. “Using a secure data room during legal due diligence isn’t just helpful — it’s essential for keeping documents organized, protecting sensitive information, and speeding up the review process,” says Gilbert Waters, Marketing Specialist.
Benefits of Virtual Data Rooms for Legal Teams
Here are the advantages a due diligence data room can bring to the legal investigation process:
Data Security
Virtual data room providers come with a variety of dedicated security features, which were designed to safeguard clients’ sensitive data. Among its many features are IP restriction, granular access controls, watermarking, redaction, multifactor authentication, bank-grade encryption, Fence View, and many more. In other words, numerous additional security measures are taken to guarantee that all of the documents remain private and secure.
Faster Document Management
With tools like bulk upload, full-text search, and automatic indexing, VDR due diligence speeds up document collection and review. Rather than manually searching through PDFs, legal teams can quickly locate the precise contract clause they require.
Better Collaboration
All the deal participants can effectively collaborate in one centralized VDR space. That’s possible thanks to comments, notes, and a dedicated Q&A section where users can post questions and get prompt expert answers from assigned specialists. It can significantly speed up the legal due diligence process.
Transparency
Every action inside the VDR is recorded, providing a full audit trail. Tracking who has viewed, downloaded, or printed documents is very helpful for internal reporting and compliance.
Regulatory Compliance
The best virtual data rooms are built to meet legal and industry-specific standards, such as HIPAA or GDPR. This helps law firms and companies avoid fines or legal issues during the transaction.
How come?
Imagine a legal team preparing for a merger. They need to review hundreds of contracts, ensure all IP assets are properly registered, and share these documents with three external law firms. Using a VDR, they upload everything once, control who accesses what, and get real-time alerts when documents are reviewed. What used to take weeks now takes days, with less risk of human error.
Final Thoughts
A virtual data room is an assistant you want during a legal due diligence process.
Virtual data rooms have all the dedicated functionality to ensure effective collaboration between M&A teams and, what’s even more important, the security of confidential data shared during the investigation process.
Select a virtual data room as a primary digital tool during legal due diligence, and observe an accelerated decision-making process and, better, surprise-free deal outcomes.
