What does due diligence check involve and where you can conduct it?

The virtual data room software offers practical tools for better collaboration in the cloud to make due diligence procedures easier. So, this article will explain the common points of the business audit and the benefits of organizing it in a data room software.

The due diligence process at a glance

If you want to acquire a company (or company shares) whose economic situation you do not know, you have the opportunity to use due diligence. It is a comprehensive check to form an accurate idea of the correctness of the business model, the object of investment, the legitimacy of owning and acquiring the assets included in it, and the legality of the upcoming transaction itself. You can use this procedure to get a concrete picture of the opportunities and risks associated with a transaction. Due diligence will help you to understand the following points regarding the target company thoroughly:

  • your purchase price determination;
  • external third-party financing;
  • the future positioning and integration of the company.

Accordingly, due diligence forms an extremely important basis for successful transactions. You can optimally incorporate your results into purchase and sales contracts of companies. Last but not least, it is essential to carry out due diligence concerning the liability of all managing directors and board members involved in a company.

Virtual data room: how to share sensitive data?

The buyer begins the due diligence process based on the information provided by the seller and with the clear objective of acquiring the company’s shares. In this case, a virtual data room is organized to ensure easy access to confidential due diligence documents for all team members. The communication platform enables the secure and efficient exchange of documents and information as part of due diligence. All stakeholders involved, such as issuers, consultants, auditors, and process banks, can securely access the transaction-relevant data anytime during all phases of the procedure.

In contrast to the physical data room, where the documents are stored with a company lawyer, the data room has some advantages. Therefore, if you do not know how to choose data room.

  • Data security and privacy

Security standards are ensured by ISO-certified server facilities, encrypted data transmission and storage, and guaranteed by data protection-compliant server locations. In addition, there is complete control over the documents and information through the individual assignment of rights and detailed logging of all data room activities.

  • Data management 

When working with a large number of incoming and outgoing correspondence, it will be of interest to convert documents from other types of files and the ability to store documents in other formats in the repository. The function of document history or logging operations will allow the due diligence participants to trace the actions carried out on the document during its life. Furthermore, it will make it possible to find out from which user this or that operation was carried out.

  • Document versioning

Another useful mechanism for working with due diligence documents is version tracking of documents. It can be useful if you have many people working on a document, who can edit it.

  • Single data repository

With an unsuccessful storage structure, the speed of working with documents can significantly decrease depending on the fullness of the database. Therefore, considering this requirement, it is necessary to represent the quantitative volume of data circulating in the due diligence process. Operations critical to the amount of data are adding, searching for a document, viewing a list of documents, and sorting.