In this article, we will consider what a due deal is, what this procedure means, what advantages it gives to a business, and in what situations it is advisable to apply to data room due diligence.
When and why Due Diligence is carried out?
Entrepreneurship is inherently high-risk. But it would be strange if businessmen did not seek to prevent and minimize risks, especially when it comes to a large investment or transaction. In business practice, this is called Due Diligence.
Due Diligence is a comprehensive check of a company or other investment object. A whole team of experts is involved in the procedure, consisting of:
- financial analysts;
- tax consultants;
- environmental experts;
- auditors, etc.
Due Diligence can include various areas of research, which depend on the goals set by the initiator of the procedure. It is necessary for any entrepreneur who intends to invest in another business, directly or indirectly. Such a pre-purchase measure helps to minimize the risks of acquiring an illiquid asset and to find out in advance about problems, reduce the value of such an asset or refuse to purchase. Also, the owners of the alienated business themselves turn to Due Diligence to form a real and worthy commercial offer for the sale of an asset for potential investors. As a result, the Due Diligence procedure is becoming more and more relevant in the development of financial risk management methods.
The place of Data Room in Due Diligence procedure
The procedure begins from the moment when the buyer only begins to plan a possible purchase (takeover) of the investment object. The study of the company’s activities begins the search for any information about the company, as a rule, through official sources (Internet sites, publications in the press). Search, tracking, and analysis of information are carried out to find out the value of the company and interest in its acquisition. A great amount of data is analyzed during this operation. Thus, a secure repository like Virtual Data Room, for document management plays a vital role here.
To facilitate work and save time, it is very important to have all the necessary documents in one place, in a special Virtual room. This facilitates the search for documents, makes it possible to ask the staff questions and conduct negotiations, and also allows the seller to somehow control the process of working with documents. Every member of the Due Diligence team should have constant access to this room at all times.
The purpose of Due Diligence is to obtain confirmation that the investor’s decision is economically viable. The tasks of Data Room Due Diligence are:
- identification of potential risks for the buyer when making an investment decision;
- assessment of the adequacy of the amount of profit/loss and identification of critical drivers of the transaction;
- confirmation of the buyer’s assertions regarding the financial position of the target company;
- identification of events that may affect the sales contract;
- assessment of the strengths and weaknesses of accounting systems;
- optimization of the structure of the transaction;
- identification of areas to look out for after completion of the transaction.
The Due Diligence Data Room provides the following possibilities:
- control from the web console using the HTTPS protocol;
- automatic daily cleaning of file storage following configured policies;
- recording information about all uploaded and downloaded files, identification data about the user’s PC performing actions in the System (IP, OS, browser, etc.)
- viewing logs;
- search by various parameters;
- flexible reporting tools and visual panels.