Virtual Data Room Software for Due Diligence

Virtual data room software is gaining more popularity by the day, as they’ve become a one-stop solution for due diligence-related procedures. Since companies and businesses undergo due diligence for different reasons, you’re about to find out how VDRs can provide industry-specific benefits for due diligence.

Learn more about what a virtual data room is.

What is a due diligence data room?

Due diligence data room is a secure cloud solution where several parties in M&A deals may share sensitive data, including commercial, legal, and financial documents that can be shown to potential investors for evaluation and analysis. Prospective investors and potential buyers may easily access due diligence data rooms after receiving authorization from the seller and signing the NDA.

What is the role of the due diligence data room in the M&A process?

An online data room may be used to build a due diligence data room and replace a traditional data room in M&A transactions. A virtual data room for due diligence creates a secure environment for transferring confidential information, financial statements, and other documents relevant to the deal. The target company’s presentation of documents and the purchasing company’s assessment of those documents both contribute to the decision to proceed with the acquisition and review process.

Due diligence data room vendors

What to consider when choosing a virtual data room for your due diligence project?

Modern due diligence data room providers are well aware of their clients’ needs. This understanding results in a wide range of good products for users. The following are the most important factors to consider:

Experience within the target industry

You need to make sure that the virtual data room provider you choose has enough experience working in your industry, so in case you have any issue specific to your niche, the provider will be able to quickly assist you and resolve the problem. 

Rating

The comparison of ratings allows you to quickly identify what customers think of the software and which level of the overall user experience to expect from a certain vendor. 

Security certifications 

For due diligence data room security is the highest priority. The sensitive data will be shared, so the vendor should complete a certification program and comply with international security regulations to ensure users all data is safe.

Features for efficient work

Document management should be simple, as it speeds up the deal’s progress. The more that can be done in the virtual data room for due diligence, the better.

Pricing 

The pricing structure of the virtual data room software should be clear, without any hidden fees that may be over your budget. 

Usage and access convenience

The software should be user-friendly, using the VDR should be equally convenient for all new users involved in the transaction. Flexible platform support is also important, as it helps users make decisions faster and streamline the deal. 

Questions you need to answer before choosing a data room provider for due diligence

The common questions to ask before committing to any data management software include the following:

• Does a data room vendor provide due diligence checklists for your project? – These save a lot of time and provide a convenient due diligence data room structure to help you better organize all documents related to the transaction.
• How can I track the progress of due diligence? – The software can generate reports with details on all user activity that allow admins to track and analyze the progress on certain tasks. Activity tracking helps admins identify any suspicious user behavior and prevent a data breach.  
• How can I be sure that the highest standards of security are in place? – Confidential data handling requires advanced technology and impeccable practices. Best features for external and internal security include 256-bit AES encryption, ISO 27001 certification, advanced permissions, multi-factor authentication, and more.

Must-have features of a virtual data room for due diligence

Here are the features that should be present in the VDR for a successful due diligence process:

How to structure a virtual data room for due diligence?

Now that you’ve decided what due diligence virtual data room vendor is right for you, you should ensure that your data room is rightly structured to ensure nothing is missed. 

1. Find the right provider. You’ll have to make a decision early enough. As long as the features and functionality of the VDR meet your industry needs and the provider is security compliant, you can move on to the next step.
2. Determine the due diligence stage you are in. If you’re trying to do a first-time test run, you should estimate how much information you’re sharing, especially if it’s a teaser for investors to determine if they’re willing to follow through.
3. Ensure files are properly named and structured. Use existing file naming conventions to arrange and organize the files to avoid mix-ups. You can even get an automatic folder structure for maximum convenience. Index the files alphabetically or according to your industry-specific technique. 
4. Group your files in the order of importance to your business operations. Group them into a few top-tier folders consisting of different document sub-categories, depending on their similarity.
5. Validate your VDR security. Maintain control of all the data and manage user permissions. Determine how you want each user to interact with each file, especially if you want to control printing and downloading.
6. Add stakeholders to the data room. Ensure they are properly grouped depending on what side of the deal they are, and their importance to the due diligence process. Recheck their accesses and permissions to double-check oversights.
7. Run internal due diligence. Test your VDR beforehand by running pre-due diligence. This allows you to access your VDR from a user’s point of view. It also helps to spit slips and omissions, so they can be fixed early enough.

Basic due diligence data room content checklist

Depending upon the industry, there might be required documents of specific formats to be uploaded to a data room while some compliance regulations must also be met. Having a due diligence data room checklist of requirements and pre-setup index templates can help to save a lot of time and keep your data room workspace organized. iDeals Solutions has assisted with thousands of projects and provides professional due diligence data room indexes for various industries.

Using a checklist helps to ensure that there are no oversights in preparing for data room due diligence. Here are the important documents to include on your checklist for virtual data room due diligence. 

• Business information documents. These describe the incorporation of the company, such as permits and trade licenses.
• Financial information documents. These certain documents will give a potential buyer a look at how the business has fared financially in a minimum of three years.
• Human Resources (HR) documents. These are necessary documents regarding human resources, the work and people culture of the organization, including copies of all employment agreements, relating to any compensation arrangements and other types of similar agreements. 
• Intellectual Property (IP) documents. Documents relating to intellectual property, trademarks, and copyright of the corporation, including agreements for granting rights to use IP owned by a third party and summaries of any instances of the alleged infringement.
• Legal documents. All important legal documentation concerning the company, such as articles of incorporation, by-laws, minutes of meetings, powers of attorney, government litigation, etc. 
• Commercial documents. Lists of the top 25 customers, revenues, and material sales channel partners for each of the past 3 years.
• IT documents. Files with details about any current or planned IT initiatives or software purchases.
• Environmental, health, and safety documents. Summary of all environmental investigations, litigation, and any past or ongoing remediation efforts relating to environmental matters.
• Tax documents. Results of tax audits, resolutions, and all material communications and agreements with any taxing authority. 

Using the due diligence virtual data rooms across industries

Since due diligence cuts across different industries, a data room user might want to be sure the software is tailored to meet industry requirements. So you might want to ask your provider questions about how the software is designed with features, workflows, and possible use cases of the VDR. 

Financial services

A financial service data room for an insurance company, stock brokerage, or bank will need to detail specific features. Since these facilities often go through different aspects of due diligence from time to time, large storage capacity is an important feature of this process.  

Biotech

Whether to license a new product or for a clinical trial of a project, the right software is required to make the process seamless. However, biotech due diligence is important as it involves confidential documents, intellectual properties, and health records. 

Energy

Investments in renewable energy are on the rise so it’s not surprising that more mergers, IPOs, and licensing deals are also rising, increasing demand for due diligence in the industry. A virtual data room provider should be able to support the storage requirements and file formats that these deals involve. 

Infrastructure

The engineering industry is a dynamic one, and data rooms are important to manage finance documents across different projects, and share confidential documents in the case of mergers. It’s important that your data provider supports all file types used in the industry aside from office files, such as DWG, DXF, RVT, etc. 

The most popular types of due diligence for which VDR is used

There are up to five different forms of due diligence that must be conducted as part of the procedure in the vast majority of cases.

Among other types of due diligence, you can find the following: M&A due diligence, HR due diligence, asset due diligence, tax due diligence, customer/sales due diligence, and more.