Understanding the Due Diligence Process: How Virtual Data Rooms Simplify the Task

In today’s dynamic business environment, it becomes critical to have quick access to documents during the due diligence procedure and ensure their secure storage. This article will present a guide on optimizing the virtual data room for due diligence workflows.

Common points of the due diligence

The due diligence procedure begins when the buyer is just starting to plan a possible takeover. The study of the company’s activities begins the search for any information about the company, as a rule, through official sources. Search, tracking, and data analysis are carried out to determine the company’s value and interest in its acquisition. The due diligence procedure lasts from several weeks to a year, depending on the structure and size of the business.

Let’s look at the main components of the due diligence process:

  • profit and cash forecasts;
  • conditions on which the actual obtaining of forecast values depends;
  • prospects for synergy, economies of scale after the merger;
  • availability of contracts with major customers/suppliers/partners;
  • availability and condition of assets, their residual value, and legal purity of ownership;
  • current, long-term, and potential liabilities;
  • confirmation that the company is conducting usual activities, that is, it is not currently experiencing any problems;
  • proof that the company’s managers and information systems are working as usual;
  • investigation of any recent changes in the financial system of the company.

Due diligence is usually a lengthy process covering many aspects and providing detailed reports. So, how to organize transparent and efficient evaluation procedures?

Virtual data room: how to simplify the procedure?

If a company is attractive, several venture capitalists may be interested in investigating the company. As a result, many parties may be involved in conducting due diligence. Instead of sending the relevant information to all interested parties individually on request, it should be summarized in a virtual data room. Dealing with all the different requests via email takes too much time. Therefore, companies introduce cloud-based data room software to automate routine procedures and organize secure data exchange.

The due diligence data room is a combination of the documents themselves in digital form and a software product that ensures their archiving, registration, protection, search, structuring, classification, and access to them. The software’s functionality is based on the computing power of the centralized information environment.

The market of data room systems is already quite developed and saturated. A group of leaders has also formed, comprising five or six companies whose products are functionally similar. They are as follows:

    • iDeals
    • Intralinks
    • Ansarada
    • Digify
    • Firmex.

How to implement due diligence data room?

First, it is necessary to install the software on the server and user workstations, then configure the system to the specifics of the company. Depending on the customer’s preferences, this can be done independently and with the help of implementation specialists from the developer or integrator.

Before you put your virtual data room into operation, you should check all relevant aspects along the affected processes. They are:

      • Role and rights management;
      • Protection against dissemination;
      • Documentation;
      • Usage rules.

When transitioning to an electronic document management system, you must start changing the usual way of work without duplicating paper business processes. Users in the learning process combine the operation of the data room with obtaining basic knowledge of working in the system. You must constantly work in the system, so convenience and simplicity come first.