19, April 2021

Due Diligence Virtual Data Room

Sharing due diligence documents is a necessity to establish a trusting relationship between interested parties. Due to technological advancements, the process has changed from a physical to digital environment. How does a virtual data room for due diligence differ from a physical exchange? Keep reading to find out.  

What is a due diligence virtual data room?

A due diligence virtual data room is a specially designed, secure virtual document and file storage repository. Creators of virtual data rooms are aware of the importance of document accessibility and this is where a virtual data room for due diligence stands out. Access can be granted to multiple parties and the files can be accessed from anywhere at any time, simplifying the due diligence process

During the course of due diligence interested parties carry out a careful evaluation of documents before any M&A takes place. At this stage it is important that the potential stakeholders have quick and easy access to documents as well as a transparent view of the company data. 

Robert Hurka, an Ernst & Young Senior Consultant shared his thoughts on virtual data rooms:

“Talking about functionality, I personally find history really cool. Checking all actions, downloaded documents, user activity – you can pretty much go through the progress of the whole project.”

How to use a virtual data room for due diligence

data room due diligence

1. Start with a due diligence checklist

Preparation before each business endeavor is crucial to further the successful completion of due diligence. Be sure to consult the checklist for due diligence virtual data rooms found below this section. 

2. If possible, start a free trial of the service

To competently use software, we need to get to know the tool. A free trial enables us to see the capabilities of the virtual rata room and provides us with enough information to start integrating it into the due diligence process

3. Investigate the templates 

Many virtual data rooms have curated templates for their clients. Check to see what is available and determine whether it will be suitable for your due diligence data room needs.

4. Check the folder integrity 

Make sure every document is placed in the correct place. The automatic folder structures might be helpful, but only if they serve your purpose and are used correctly. Look through the structure before giving access to the interested parties.

5. Invite the interested parties 

After everything is placed correctly in the data room, you can start inviting users. Get requests from them and start the next step. 

6. Upload the necessary documents 

When the users have access to the virtual data room due diligence space, you can fulfill user requests for necessary documents by adding to the existing folder structure. 

7. Set timelines and give roles to users 

The invited users need to have objectives to make the due diligence process run smoothly. Assign roles to oversee that files are added, signed, etc. as required to keep the process moving forward.

Data room due diligence checklist

While setting up a virtual data room, this checklist might be helpful for different aspects of your business. 

data room due diligence

Legal due diligence checklist

Each company has a sequence of documents related to agreements with vendors and other businesses. Those are necessary files to show what the company is capable of, the size of the deals they oversee, and many more activities related to the legal side of the business. Legal documents can consist of:

  • Management documents 
  • Real estate leases 
  • Loan agreements
  • Any legal cases

Financial due diligence checklist 

The state of a company’s finances is one of the first places interested parties like to investigate. To make sure this investigation is as transparent as possible, the following financial documents should be provided:

  • Strategic plans for growth 
  • On-going strategies 
  • Financial statements
  • Details of bank loans 

HR due diligence checklist 

The number of workers, policies connected to them and medical care are all part of the HR department documentation. To prepare for due diligence, the company should present HR documents such as:

  • Medical-related policies – sick leave, overtime, and holidays
  • Training program documents 
  • Data on the workers (i.e. resume)
  • Terms and conditions of the worker-related benefits 

Intellectual property due diligence checklist

Patents and trademarks are parts of the intellectual property of a company. To show that you have every document organized, you should show the following intellectual property files to the interested party:

  • Correspondence with designated regulators 
  • Reports connected to the process
  • Intellectual property contracts 

Due diligence is an important process in the business world, and through the use of new technologies like virtual data rooms, the process has become much more straightforward and user-friendly for everyone involved. Thanks to the tools found in virtual data rooms, businesses can show transparency in all areas of their company – from legal to intellectual property. Ultimately, virtual data rooms provide a secure way of showing  necessary data for a successful due diligence process from start to finish.