Due diligence is one of the key processes in a complex M&A transaction. Potential buyers or investors take a detailed look at all the background information on a company to get to know the target of their purchase better. Nevertheless, many companies don't get the market share growth they want after the deal. Virtual data rooms for due diligence allow you to increase the efficiency and speed of the transaction, increasing your chances of success.
What is due diligence, and why use a virtual data room?
Due diligence is essentially an evaluation of a business and its actual value. Through this process, potential buyers can better understand how the company is doing and decide if the purchase is worthwhile for them. The online due diligence process is becoming more common as the world becomes more digitized.
Advanced technology is making it more organized and simplified, which will greatly increase the chances of merger and acquisition success. But, at the same time, online activity raises concerns for entrepreneurs because not every online repository can cope with today's cyber threats. That's why virtual data rooms are a necessity in due diligence.
At first glance, a virtual data room offers the same online storage as GoogleDrive and Dropbox. However, this solution is designed for professional business use, meaning its security level is several times higher than that of shared cloud servers. In addition, VDRs are certified solutions that offer advanced security technologies such as data encryption, watermarks, granular permissions, login security, and full document access control.
How do you use a virtual data room for due diligence?
Due diligence is a complex process; even with a quality tool like a virtual data room, this operation can become chaotic. However, if you know how to set up and use a VDR solution properly, you can easily avoid the clutter and increase the efficiency and smoothness of this due diligence. Below we've highlighted a few tips to help you do just that.
- Make a due diligence checklist
Depending on the type of deal you have, potential buyers will ask you for different types of documents. Therefore, make a list of the data you need to provide for full due diligence. Some VDR providers offer a pre-packaged list of documents; it's best to use it, so you don't waste time.
- Collect and scan documents
If your documents were in physical form, scan them, choosing a black and white format with 200 DPI resolution. Choose the smallest file size possible; this will save you space and time when uploading.
- Consider a clear naming system.
Be as simple and transparent as possible in your naming. Put yourself in potential partners' shoes and name your files in a way that clarifies to them what's inside.
- Create an effective index
An index is designed to organize the data in your file system logically. So you should divide your documents into major categories, for example: legal, accounting, financial, etc., and into sub-categories if needed.
- Download files
Uploading documents is easy, as VDR automates this process in many ways. All you need to do is create a separate workspace and name your project. Next, upload your data using bulk uploading and drag-and-drop. While your data is being uploaded, the system will automatically scan it for viruses, number it, and index it.
- Set permissions
The first thing you need to do is freeze the index. Next, select user groups or individual users, and set their permission level to documents based on their specialization and responsibilities.