The Role of Virtual Data Rooms and AI in Due Diligence

Welcome to The Dealist, your trusted insider's guide to navigating the complexities of mergers and acquisitions (M&A). This episode of the podcast explores how technology, particularly virtual data rooms (VDRs) and artificial intelligence (AI), has transformed the due diligence process.

We’re joined by two distinguished guests, Noah Waisberg, CEO of Zuva, and Prakash Kanchinadam, head of AI and analytics at SS&C Intralinks. Together, they explore:

• The history and evolution of M&A, and the introduction of virtual data rooms as an essential tool for secure transactions
• Why VDRs are indispensable for managing today's complex deals, with their built-in security features and ability to handle vast volumes of data
• The role of AI in enhancing due diligence for dealmakers — from automating labor-intensive processes like document classification and redaction to identifying key contractual obligations
• The future of AI in M&A, its opportunities to reduce manual work and its limitations that highlight the continued importance of human judgment
• What the rise of agentic AI could mean for the future of due diligence

Host: Catherine Ford
Further reading: The Dynamics of Due Diligence                                                                                     

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Transcript

Catherine Ford: Welcome to The Dealist, the insider's guide to M&A and the complexities of navigating diligence. My name is Catherine Ford, and today, we're going to talk about the role of data rooms and AI. Joining me for this conversation are Noah Weisberg, CEO of Zuva.

Noah Weisberg: Hi.

Catherine Ford: And Prakash Kanchinadam, head of AI and analytics at Intralinks.

Prakash Kanchinadam: Thank you very much for having me.

Catherine Ford: I'm delighted to have you both here. I'd like to jump straight in, Prakash, with a question for you. Can you talk to us about virtual data rooms (VDRs) and the advantages of using VDRs in the due diligence process?

Prakash Kanchinadam: Hi, Catherine. Hi, Noah. Thanks for having me on. It’s an interesting topic. When I look at the history of mergers and acquisitions, it’s fascinating because M&A has been ongoing for over a hundred years. It really began during the turn of the century with significant entities merging to form bigger ones. Over time, the size and scope of these transactions have only grown.

Fast-forward to about 30 years ago, and that’s when technology started shaping how these negotiations happened. Virtual data rooms emerged as a transformative tool within this space, allowing these transactions to be conducted more securely and efficiently. What we know today as VDRs has truly revolutionized the process.

Catherine Ford: If we take a step back, Prakash, do you think doing a deal today without a virtual data room is even possible?

Prakash Kanchinadam: It’s almost impossible to envision a deal done without a VDR in today's world. Years ago, deals involved physical rooms with stacks of paper files. For example, in one of your earlier episodes, I remember Scott Muller talking about his days as a financial advisor going through boxes of documents in actual data rooms.

But today, with the sheer volume of data involved in due diligence, conducting deals in that traditional manner would be unthinkable. Modern transactions are far more complex, involve more parties, and dramatically higher volumes of data. Technology makes all this manageable and adds security to the equation.

Catherine Ford: I can imagine. Noah, from your perspective, could a deal be conducted without a virtual data room?

Noah Weisberg: Oh, sure, Catherine, technically, yes. Like, you can do anything, but the real question is about efficiency and risk. I’ve been in physical data rooms back in the day, in cities like Pittsburgh. We’d sit in a room with multiple boxes of documents, reading through stacks of contracts and typing out notes on laptops (if we even had laptops back then!).

It’s possible to work this way, but it’s time-consuming. Reviewing fewer documents results in less knowledge for the buyer, less mitigation of risk, and increased costs. A VDR saves time and offers scalability. AI takes that forward another step, helping us process data even more efficiently and identify risks much more quickly than manually combing through files.

Catherine Ford: That’s an excellent point, Noah. Prakash, you mentioned security earlier. How critical is that in modern transactions?

Prakash Kanchinadam: Security and privacy are non-negotiable in today’s dealmaking. Sensitive data, competitive information, personal details, all of that needs to be safeguarded. With VDRs, there are robust security mechanisms built-in, which vastly reduce accidental disclosures or breaches. Bankers are very cautious about maintaining confidentiality while executing these deals. They expect a platform that prioritizes data integrity and confidentiality, which VDRs deliver.

Catherine Ford: You highlighted some significant benefits of VDRs, the most obvious being the ability to process immense volumes of information and their robust security. Is there anything else you’d like to add?

Prakash Kanchinadam: Absolutely. Beyond those technical capabilities, VDRs foster collaboration. These deals often require input from expertise scattered across the globe. A VDR enables all these experts to access the relevant data securely and contribute effectively without needing to be in the same physical space.

Catherine Ford: Thank you for that. Noah, I’d like to shift the focus to your favorite topic, AI. On a basic level, what tasks can AI fulfill in a VDR setting?

Noah Weisberg: (Laughs) My favorite topic is probably my kids, but AI comes close. At its core, AI does a few critical things in a VDR. First, during set-up, it helps with organization, like sorting documents into categories or even renaming and redacting them. Second, it helps analyze the contents of these documents. For example, if there are thousands of contracts, AI can surface critical clauses like non-compete agreements, change-of-control provisions, or exclusivity restrictions. These can easily be buried in hundreds of pages, but AI ensures they don’t get overlooked. And finally, post-review tasks like generating notices or consent filings can also be accelerated using AI. It really helps eliminate the most tedious aspects from the process.

Prakash Kanchinadam: I’d like to add to what Noah said. At Intralinks, we began integrating AI into the VDR process over six or seven years ago. One early use case was document classification. For sellers managing thousands of files, AI helps organize them accurately, ensuring the right information is found in the appropriate file structures. Another significant use case has been automated redaction to obscure sensitive data. AI ensures this task is done precisely and consistently while allowing users to scale the process across a vast set of documents.

Catherine Ford: It’s clear AI is a game-changer. But I’d like to talk about the future. Noah, where do you see AI heading in this space?

Noah Weisberg: I think AI will continue enabling faster, broader analysis. When I sold my own business, setting up the VDR, responding to bidder questions, preparing disclosure schedules...all of that was a lot of work. AI has the potential to minimize the time and effort these activities take. On the buy-side, AI offers the ability to conduct due diligence far beyond what human teams could handle within a typical timeframe, identifying risks and opportunities that might otherwise go unnoticed.

Catherine Ford: Prakash, while it’s exciting to hear about possibilities, what are some limitations of AI that companies should keep in mind?

Prakash Kanchinadam: One word: mistakes. AI is only as effective as the data it’s trained on and the safeguards surrounding it. A human-in-the-loop approach is essential. After all, even the best AI systems can misclassify, miss key details, or generate errors that, in high-risk scenarios, could have significant consequences.

Catherine Ford: Certainly. There’s a growing concern about AI replacing humans. Noah, will that happen? 

Noah Weisberg: I think not entirely, no. I’ve been building AI for M&A since 2011, and AI is fantastic at supplementing human work, not supplanting it altogether. Deals come with inherently high stakes and trust in human expertise remains paramount. AI tools are there to accelerate processes, minimize repetitive tasks, and enhance accuracy.

Prakash Kanchinadam: My sentiment exactly. Humans remain central to decision-making, especially for critical or material aspects of a deal. AI’s role in those processes is to empower—not replace.

Catherine Ford: This has been a fascinating discussion, and I want to thank both Noah and Prakash for their insights. For our listeners, subscribe and share this episode if you found the conversation valuable. Join us next time on The Dealist. Goodbye.