Virtual data rooms, or VDRs, have become an integral tool for successful M&A transactions.
Let’s first define VDR; a virtual data room is a secure online, cloud-based, storage center for sensitive documents.
Traditional VDRs can be appropriate for smaller deals, but most practitioners would agree for larger deals a deal room is more desirable.
We at DealRoom help dozens of companies organize their M&A process and in this article we’ll explore data rooms and deal rooms differences and how much both should cost.
To truly transform your M&A practice though, you need to move beyond a data room to a Deal Room that leverages a platform designed specifically for M&A.
In fact, the best Deal Rooms (in other words: a software designed specifically for M&A) can help deals not only close faster, but also better prepare for integration. And even even allow to conduct integration in you need.
So, let’s look into how deal rooms and how they are diferent.
Such M&A software with built-in VDR provides M&A professionals with a solution for sharing large amounts of sensitive documents, easing the burden of having to collect and disclose confidential information during the due diligence process.
They also modernize and streamline document management for complex, information-heavy M&A deals.
You can find detailed comparison of M&A Software and Virtual Data Room here.
That being said, if you are considering a software to organize your M&A process, take a look at DealRoom. It will be much more effective than any typical data room on the market, as it designed to make M&A deals more efficient. You can schedule a free demo to see how we can help you enhance your deal.
But let’s back to the data rooms.
Your question: how much should a VDR cost? How much should I pay for it?
Short answer is: depending on the project and vendor, VDRs can be astronomically expensive. While some vendors provide software for $500/month, others ask for $10,000 and even more.
In the next section we’ll explain why it happens.
Virtual Data Room Pricing Explained
Most VDR vendors still rely on per-page pricing, a pricing structure held over from the day when providers must be onsite to make copies of physical documents.
Depending on transaction value and size, per-page pricing can cost anywhere between $20,000 to $40,000. We have also all heard stories of invoices well over $100,000, due to overage charges and extended timelines.
M&A professionals, as well as their clients, have learned to swallow large invoices from data room providers.
However, VDR technology is advancing, and it’s time their pricing does as well.
Ultimately, a project’s value, size and duration will determine virtual data room price. So, here are the typical questions:
- What average VDR cost structures should M&A professionals expect?
- What functionality should a virtual data room have and how does it impact on price?
- And, as the VDR market continues to grow, what should VDR invoices truly look like?
So let’s start with pricing structures.
Virtual Data Room Pricing Structures
Virtual data room costs and pricing structures vary by vendor. See a pricing structure comparison below:
As we can see, VDR cost is generally structured by one or a few of the following:
Many providers rely on the per-page pricing model.
Depending on the scope of the project, these providers will typically charge between $0.40 and $0.85 per page.
This pricing structure may be attractive for small projects with a clear or set number of documents. However, for larger projects, this model can lead to large invoices and overage fees.
Some VDRs will provide a set number of user licenses and will charge extra for each additional user. The number of users provided and the price for overages vary widely by vendor.
Typically, data rooms will charge between $100 and $250 per administrative user.
Before choosing a data room provider, it is important to check how many users the room will allow without charging extra.
3. Storage Size
Data room storage size is another way some VDR providers determine cost.
Certain VDR providers set a cost structure based on the number of gigabytes (GB) the room uses.
Other providers may allow of a certain number of GBs, or provide a range, and charge for overages if the need arises.
Overages can cost as much as $75 per GB. This may be a good pricing option for projects with relatively small text file sizes.
4. Flat Monthly Fee
Other VDR providers simply charge flat monthly fees. These plans typically allow for some amount of data, unlimited pages and users and cost between $400 and $1000 a month.
Many projects can be unpredictable is size, scope and duration. VDR providers that charge flat monthly fees enable teams to save money and avoid large overage fees, that way they can focus on what’s best for their project.
For example, FirmRoom VDR pricing is $400/month billed annually and includes unlimited users and 10GB of storage. While for $2000 you can get unlimited number of rooms with 25GB overall storage.
And if you ever need a free virtual data room just for storing documents without flexible permissions, check out Google Drive.
Finally we can say that flat monthly fee pricing models are ideal for extensive projects with unknown or extended timelines.
What pricing structure is the best?
Astronomically expensive data rooms that center around per-page pricing models will hopefully become a thing of the past.
20 years ago, virtual data room software providers physically scanned and uploaded documents onto costly servers.
Today, everything is digital and the cost of cloud storage is at an all-time low of $0.002 per-page.
Data room providers charging between $0.40 and $0.85 per page are making an incredibly high profit margin without necessarily providing the best technology and room quality.
As VDR technology evolves, their pricing models must evolve as well.
Flat monthly fees like FirmRoom has, for example, allow deal teams to worry less about data, user and time overages and more about what is best for their deal.
Virtual data room software determining costs
When comparing online data room providers, cost is an extremely important factor.
Cost between providers can fluctuate extremely and can leave you wondering what the difference is between them. The difference may just be a more equitable pricing structure.
As prices evolve, teams should compare the following features to make sure they are getting the best deal possible:
Virtual data rooms must be secure as security is a data room’s main purpose of being.
VDR security may be the most important function to compare when choosing a data room.
It is essential to look for:
- data encryption level,
- watermark capability,
- secure document storage,
- authentication technology,
- security certifications like SOC 2
- and ability for document recovery.
2. Data Management
Sensitive data management capability is the second key factor to compare between data room providers.
When selecting a data room, it is important to consider how easy it is to upload and download documents to and from their platform as well as their editing, documents indexing & folder structure, search abilities.
3. Project Management
Many teams need more than simply just a data room.
Certain providers offer not just virtual data rooms but a full lifecycle management software with integrated project management capabilities. It allows not only storing your data but also streamlining your process and communications, both internally and externally.
We can suggest DealRoom here. It allows teams to interact more efficiently, plan next steps, delegate workflows, and organize individual tasks.
It is more expensive and starts nearly from $1000/month but you can expect more than just a platform to securely store data. But also diligence management, integration management capabilities with advanced analytics.
The last thing a team wants to do when beginning a project is to learn a new, complex tools.
Data rooms should make life easier and be user friendly.
Look for virtual data rooms with intuitive, easy-to-use platforms with live chat support, email, phone, and other customer services.
Additional virtual data room features to look for are:
- view only access,
- convenient document sharing,
- granular analytics,
- easy users management,
- and simple permissions.
Virtual data rooms should track important information and create meaningful analytics.
During M&A transactions, it is often essential to understand which users and buyers are most engaged and which documents they view most.
VDRs with analytic capabilities can lead to more informed decisions and aid the integration process.
6. Software Integrations
Certain providers allow for the integration of other commonly used softwares onto their platform, such as Microsoft Office or Slack.
Software integration will increase functionality and allow you to get the most out of your data room.
So, let’s take a look of most popular data room providers on the market right now.
The VDR market is quite crowded, and we know any old VDR cannot truly transform your M&A process. Considering user reviews will help you navigate these crowded waters.
To simplify this search we have compiled a list of the top VDR providers and M&A software based on both user reviews and overall popularity.
Please note: not all of them follow the flat rate pricing system.
Let’s compare the prices of providers of data rooms and software for M&A
Here we provide a basic overview of the pricing systems of popular data rooms.
Using this chart you can also compare some of what is included in their pricing.
As you can see from the table, very few providers offer unlimited projects/rooms with their subscription model.
With this in mind, if you need several rooms, adding new projects can become quite expensive.
Similarly, worrying about the expense of scanning and uploading data can be harmful to your deal.
Btw there is only one provider DealRoom who offer free playbooks within the subscription.
What we suggest to do before choosing a data room
Before selecting a data room we recommend you look closely at the following:
Security should be your primary focus as security breaches in security can ruin deals and hurt companies financially.
We recommend a data room that not only has customizable file access privileges, but also is ISO 27081 compliant and boasts strong encryption methods.
2. Ease of use
Your data room should be simple to set up and intuitive.
Most companies and teams do not want to spend too much time learning a new tool, therefore, select a data room that will allow you to focus on your business not learning a cumbersome platform.
Read review and take attention how many people mentioned “easy of use” in their feedbacks. Reviews platforms give badges for the best providers with this characteristic.
3. Features that will meet your team’s needs
Before you purchase a data room be sure to analyze how your company and its teams function and where teams could use support working methodically and efficiently.
For instance, some data rooms will provide templates, checklists, and playbooks and others will boast project management features.
Though we have provided an overview of data room pricing systems, it is important to reiterate the importance of considering pricing when selecting a data room.
Surprise costs can throw a wrench in projects and deals, therefore, we recommend flat-rate pricing and carefully investigating your VDR to ensure there won’t be any “surprise” fees.
Consider your budget and then search for data rooms within your range.