Virtual data room software has revolutionized the due diligence for mergers and acquisitions and other related transactions within the legal and financial sector. When businesses need a secured platform to share confidential information with third parties for closing a business deal, data rooms for due diligence come in very handy, so the buyer can make an informed decision. Due diligence helps uncover any potential liability associated with the business deal.
Although organizations take data room for due diligence just as a part of M&A, it’s, nonetheless, a vital aspect that can either make or break the business deal.
Find out how setting up a data room for due diligence can help businesses reach all of their strategic goals.
What is a virtual data room?
A virtual data room, or also known as an electronic data room, is an online repository for organizing, sharing, collecting, and storing documents. Also, online data room software integrates seamlessly with other platforms to allow both drag-n-drop functionality and two-way syncing that can get the data room operational and running in a few seconds.
Why does due diligence matter?
Although it may seem like due diligence benefits one party, little do we know that due diligence helps both buyer and seller equally.
From the buyer’s perspective, due diligence helps the interested party make an informed decision by providing all the essential information they need to make the decision before investing in the business. Due diligence sheds light on the company’s shareholders, financial picture, any potential irregularities existing in the company, and a lot more.
From the seller’s point of view, due diligence helps them dive deeper into their financial integrity and determine their market share.
Data room for due diligence is pivotal because of the following factors.
Ease of access
During due diligence, the audit team doesn’t have to wade through tons of copies of the confidential document files. With data room software, you can upload the essential files in mere clicks and are easily accessible.
Work on the go
Analysts can use the search feature to access board files, and with the help of digital analysis tools, they can streamline the workflow within the virtual data room platform.
Minimal cost
The virtual data room due diligence software is more cost-effective than conducting board meetings and due diligence physically because they reduce paper documentation and travel costs.
Functions of a data room for due diligence
Virtual data rooms have radically changed the process of due diligence. Just like the process of due diligence, the online data room software pays close attention to the whole process:
Dynamic watermarking
This functionality in the virtual data room helps businesses keep board documents secured and mitigate the risk of accidental leaks. What’s more impressive is that some of the electronic data rooms offer customization that serves as a barrier and makes it hard to peruse board materials since they embed information such as who all are viewing, location, and the time board materials were viewed.
User activity management
When performing due diligence, several files are viewed by the diligence team, and it’s nearly impossible to keep track of viewed documents in a physical data room. That’s where virtual data software comes in very handy because it helps you track down the document viewing history – an all-in solution. What’s more, exfiltration can be regulated with audit logs and allow you to see any changes in board documents.
Granular control access
The data room due diligence system gives businesses control over who can access board documents. As the due diligence team consists of people from different areas, such as legal advisors, financial analysts, etc., they are granted access to board materials that pertain to their specific roles. This, in turn, maintains the confidentiality of essential board files.
Expiry date
Virtual data room software allows businesses to set time frames in the due diligence process, just like physical data rooms. The solution determines how long a user can access the board material within the system. Online data room software helps you stay in charge, even if most of the due diligence process is conducted remotely.
Q&A tool
The virtual data room comes with a Q&A tool that enables the due diligence team to ask about certain documents and get clarified right there and then. It helps in unifying the communication channel.
How to prepare a data room for due diligence?
Here’s what you need to know prior to building a data room for due diligence:
1. Find the data room provider that fits your businesses needs
Evaluating functionalities and features before investing in a virtual data room software will help you choose the system that best fits the needs of your project. Don’t fall for a cheap cloud storage solution, so you don’t have to compromise on confidentiality. Following is the list of some of the best data rooms for due diligence:
- Merrill
- SecureDocs
- iDeals
- Intralinks
- Citrix
- DealRoom
2. Organize data room for due diligence
Make sure the data is alphabetically ordered according to the due diligence technique. What’s more, organizing the data in the right order saves a lot of time.
3. Mind security
Determine who has access to board materials and whether they can download or print the files. Also, make sure your virtual data room platform enables you to manage access and permission.
4. Add shareholders
Don’t forget to add and group all shareholders in the due diligence team. Analysts should be on board from both sides of the business, such as lawyers, bankers, etc. Allow them the required access and other edit controls such as no-download, etc.
5. Do internal due diligence
Running internal due diligence helps in detecting omissions and errors. Hence, always get some members on board to check the platform beforehand. Hence, it’s a good practice to fix errors before the actual process starts.
Takeaway
Gone are the days when people used to rely heavily on physical data rooms. As more and more corporate entities are going remote, virtual data room software ensures secure operations. With VDRs come security, reliability, and ease.