Data Room: Should Your Singapore Company Set Up One?
When making major decisions in a business, it is ideal to have all the facts at hand. However, this may be difficult as some transactions, such as a Merger and Acquisition (M&A), could involve thousands of highly confidential documents. These documents need to be stored in a secure location to prevent competitors from getting their hands on them. Data rooms serve as this secure location for businesses.
This article will explain:
What is a Data Room and Why Should You Set Up One?
A data room is a secure place used to store data. A company usually stores confidential documents in this data room. The company can then control who has access to this information via its security settings or protocols (see below).
Data rooms can also be used to organise a large volume of information. Ultimately, data rooms allow a company to:
- Restrict access to confidential information;
- Ensure rapid information sharing by consolidating and organising its information in one location through easy-to-use procedures; and
- Serve as a secure distribution channel between transacting parties in transactions such as an M&A.
The extent of these benefits may, however, vary depending on the type of data room employed.
What are the Types of Data Rooms?
Data rooms can be either physical or virtual rooms.
Physical data rooms
The physical data room is a physically secured room that is usually rented to store essential documents. Since the rented data room is located in the vendor’s premises, security (such as security guards) will be provided by the vendor. Typically, in M&A transactions, for example, buyers will visit the room to inspect relevant business documents before closing the transaction.
One possible layout of a physical data room is to have a central location and separate secure areas. The central location stores the necessary shared documents while the separate secure areas store additional documents that will be disclosed only if the other party requests for them.
The company may also request that parties enter the room one at a time. This allows greater security and physical control over the documents that may be difficult to achieve in a crowded room.
Virtual data rooms
A virtual data room is an online space where digitised documents are stored and made available. This online space is typically hosted on a cloud solution. Potential transacting parties can access the data through an internet connection (ideally a secure one).
The standard features of virtual data rooms include multi-factor authentication and advanced permissions. These allow the company to control the levels of access to important documents. Documents can also be well-organised through indexing and folder structures.
Which Type of Data Room Should I Set Up?
These are some considerations as to the type of data room that should be used:
- Level of security: While physical data rooms can provide tighter security by allowing only one bidder into the room at any one time, virtual data rooms are able to provide enhanced tracking capabilities such as which material was accessed, the duration of access, and the user’s activity.
- Cost: Physical data rooms can be costlier than virtual data rooms, depending on the type of warehouse used, the number of security guards, and moving costs between locations. The pricing of virtual data rooms tends to begin with a fixed price followed by add-on prices for more features.
- Time efficiency: Searching for documents tends to be more time-efficient when done virtually instead of physically. For example, documents can be looked up within seconds of an online database search, while manually looking for a certain document among a vast number of physical documents can take anywhere from a few minutes to a few hours.
- Convenience: It is usually more convenient to store documents in virtual data rooms as individuals will be able to view or retrieve documents at any time so long as they have been granted the necessary access rights. On the other hand, for security purposes, a company may want to allow a third-party to access documents in a physical data room only if a staff member is also present at the room. This can pose an extra inconvenience if the company needs to specially dispatch the staff member to supervise the third-party’s actions in the data room.
You should also take note that more companies are acclimatising to a virtual work environment. This means that online work solutions are gaining more prominence and the market for virtual data rooms is set for continued growth in the near future.
How to Set Up a Data Room
Here is a brief guide on the steps that you should take if you wish to set up a physical data room:
- Prepare the files for the data room. Not everything needs to be included in the data room. Only documents relevant to the transaction should be included.
- Organise the files. You should also check the files for accuracy, relevance and completeness.
- Consider the convenience of the data room’s physical location. Factors such as the level of security, maintenance and administration costs, moving costs, and travelling costs between the data room and the main office should be reviewed.
- Set security protocols. This includes the keeping of detailed logbooks and the use of door entry systems.
- Set ongoing management protocols. Activity within the data room, such as which files were accessed by whom, and which files have been removed from the data room, should be recorded. You should also schedule periodic checks to ensure that the access systems, surveillance cameras and locks are functioning well. These protocols could be executed either by your company, or by an external security agency.
Alternatively, here are the steps for setting up a virtual data room:
- Prepare the files for the virtual data room. If you have any physical files, you will need to digitise them.
- Organise the electronic files. This includes checking the files for accuracy, relevance and completeness.
- Select a virtual data room provider. There are many virtual data room providers, so do your research on whose services will fit your needs the best. Factors such as feature set, ease of use, security, user base and price should be considered.
- Upload your documents to the data room after selecting your virtual data room provider.
- Set user permissions and security rules that apply whenever a file is accessed, downloaded, copied, printed or removed.
- Test your data room. This helps ensure that the security features are operating well. Your tests should mimic expected real-world usage, including foreseeable scenarios when there are software updates. This will help you to mitigate or avoid any errors.
- Go live. After going live, you should constantly monitor viewing activity and logs to be on the lookout for any suspicious or unauthorised activity.
Data rooms allow companies to be well prepared before concluding a transaction. They function as a secure distribution channel between transacting parties to allow the parties to exchange confidential information. Between the two types of data rooms, virtual data rooms are set to continue to grow in popularity as more companies acclimatise to a virtual work environment.
If you intend to prepare certain corporate secretarial documents for storing in your data room but aren’t sure how to go about doing so, you can consider consulting a corporate services firm to assist you.
A corporate services firm helps businesses with their corporate filings and other services related to regulatory compliance. It will be able to advise you on the documents you’ll need for complying with your regulatory compliance obligations, and also prepare these documents if you don’t already have them at hand.
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