Using 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?

Virtual data rooms are used by multiple users from many firms as 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 M&A 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

VDR providersExperienceProvides due diligence checklists for industries
iDealsSince 2008, Deals Solutions has been one of the top suppliers of safe file-sharing services. iDeals provides checklists for financial (accounting), Legal, IT, Commercial, Tax, and Operational due diligence
DatasiteIn March 2020, a leading tech provider for M&A professionals, Merrill announced its rebranding to Datasite. 
Datasite offers a checklist of documents and information to prepare for the due diligence process for the finance, legal, and IT industries.
Citrix ShareFileCitrix is primarily a digital workspace provider, with the due diligence virtual data room available solely to citizens of the United States.Citrix offers the due diligence package that provides all needed information about policies, practices, and controls.
DealRoomDealRoom was founded in 2012 and is based in Chicago, Illinois. Since 2013, the company has been providing services throughout Europe and around the world.DealRoom is a virtual data room and due diligence management software that makes it simple for M&A professionals to submit due diligence checklists. DealRoom allows users to create checklists, send requests, track statuses, and interact all in one spot.
FirmexFirmex was established in 2006 in Toronto, Canada, as a solution to traditional deal rooms that needed to be reinvented. Due diligence checklists from Firmex give a complete overview of action items to ensure you have all of the necessary papers. General, Commercial Real Estate, Consumer Goods, Healthcare, Industrial, Manufacturing, Mining and Resources, and Technology are among the industries.
DigifyDigify began as cloud storage and sharing platform in San Francisco, California in 2011. The creators focused their research and development on maintaining control over sensitive files even after they were recovered.Digify offers a simple investment due diligence checklist for free.
Donnelley VenueDonnelley Financial Solutions offers a variety of tools, including a Venue data room (DFIN). Although DFIN was created in 1983 and is located in Chicago, Illinois, USA, its parent business R.R. Donnelly began operations as a printing and publishing company in 1864. Not offered
SecureDocsIn 2012, SecureDocs data rooms launched as a cloud service that provided a safe platform for document exchange and storage. It is based in California, United States, and services a worldwide clientele.SecureDocs offers a free due diligence checklist with the following document categories covered: Stockholder information, Financial records, Material contracts, Intellectual property, IT systems and networks, Taxes, etc.
IntralinksIntralinks Holdings, Inc., a global supplier of inter-enterprise content management and collaboration solutions, was formed in 1996 and is considered to be among industry-leading providers. Not offered
SmartRoomBMC Group VDR LLC (BMC GROUP) launched SmartRoom in 1998 as its main product. BMC Group is now the world’s top provider of legal, financial, and corporate information management solutions, providing enterprises across the world with cutting-edge secure technology, and claims administration experience.Smartroom provides the ultimate M&A Checklist on their website.
WatchDoxWatchDox began as a secure document storage service with an emphasis on mobile device accessibility in 2007. The company’s headquarters are in Palo Alto, US. After being purchased by Blackberry, a cellular communication company, in 2015, Watchdox began promoting itself as a collaborative file-sharing platform.Not offered
ClinkedThe Clinked data room, launched in 2008 and based in Cambridge, UK, is an online collaborative software solution, white-label file management, and client portal platform. Not offered
DroomsDrooms is a European data room company that focuses on complete security and control during high-stakes deal processing. Over the course of two decades, the firm has built a strong foothold in the German and Western European markets, as well as a significant global footprint.Drooms offers a due diligence checklist, which you can download by filling out the form on the website.
OnehubOnehub was launched in 2007 as a secure file storage and sharing platform with collaboration capabilities, with headquarters in Seattle, Washington, USA.Not offered
BoxBox, Inc. is a publicly-traded corporation headquartered in Redwood City, California. Box was established in 2005 and since then creates and sells cloud-based content management, collaboration, and file-sharing software for companies. Not offered
FirmroomFirmRoom is a safe, cloud-based document management and storage platform founded in 2012.Not offered
DocsendDropbox DocSend, which was created in 2013, is a secure document sharing and tracking system that makes it simple for businesses to exchange mission-critical documents.On their website, they offer a startup fundraising due diligence checklist.
AnsaradaThe Ansarada provider was founded in 2005 in Australia and specializes in M&A, although customers also utilize them for financing, tenders, and IPOs. Ansarada provides a definitive due diligence checklist, which you can download by filling out a form on their website.
CaplinkedCaplinked is a data room that was established in 2010 and is based in the United States.Caplinked offers the complete guide to compiling a due diligence report on their website.
SharevaultShareVault is a data room that was formed in 2003 and is based in Los Gatos, California. It, on the other hand, caters to a worldwide clientele and operates in 48 countries. Sharevault provider free to download due diligence checklist.
VaultroomsVaultrooms is a virtual data room service based in Texas, United States of America. The company’s services are focused on providing safe and secure data rooms for M&A due diligence, document exchange and storage, and a few other corporate business transactions.Not offered
BrainloopThis data room provider was founded in 2000 with headquarters in Munich and locations in Austria and Switzerland. Brainloop serves customers in the DACH market and around the world. Not offered
DealVDRDealVDR is a  firm established in New York City that serves thousands of the world’s top institutional investors, investment banks, and companies.Not offered
ImprimaImprima Virtual Data Room was founded in 2001 and now offers AI-powered due diligence technology for clients in Europe as well as the US and Australia. Imprima offers a due diligence checklist for virtual data room preparation on their website.

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:

Security and compliance

Choose data rooms that offer superior data protection and digital rights management to avoid data leaks. It must have capabilities such as 256-bit data encryption, remote shredding, automated watermarking, limited viewing mode, and access management to assure document security. Virtual data rooms should also be ISO27001, SSAE 16, HIPAA-certified, and also SOC2-compliant.

24/7 technical support

Your virtual data room has to have the appropriate multilingual functionality to suit authorized users of various ethnic and geographic origins. This is especially important in cross-border M&A transactions.

Advanced collaboration tools

Due diligence entails complicated transactions that might create a lot of problems. Make the conversation go smoothly by using virtual data rooms that allow you to post queries and receive responses quickly. Secure chats for seamless communication should be available in the data room for due diligence.

Free trial 

Using a due diligence data room is one of the greatest methods to guarantee that you’re using the right due diligence data room for your purposes. You may want to test out the platform before committing, and a free trial allows you to do so.

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. 

Due diligence data room rules and requirements

Before being granted access to an online data room to undertake due diligence, legal aspects should be discussed between the target company and the seller. A potential buyer and its representatives must agree to the terms and conditions and certain due diligence data room rules.

  1. Access to the data room. This section contains the terms of access, which specify the conditions under which the target company will be granted access to the data room.
  2. Availability of data room. This section discusses the seller’s rights and the liability they have for services or their impact on the data room.
  3. No verification, warranties, offer, or recommendation. More procedures for the revealed information that pertains to the due diligence process may be found in this section. The parties further agree that the material in the data room does not represent an offer or serve as the foundation for any transaction paperwork.
  4. Acknowledgement and acceptance. Parties acknowledge all of the policies and rules specified in the agreement in the acknowledgment and acceptance section, demonstrating that they understand and agree to all terms and conditions.

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. 

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

  • Business due diligence. This will apply to any and all mergers and acquisitions that are being considered, including post-merger integration. This will require not just a detailed evaluation of your current financial status, but also a market study of your target clients and consumers.
  • Financial due diligence. The team will concentrate on this aspect of due diligence by confirming that the financial data you’ve provided is correct and complete. Financial due diligence is the stage of the due diligence process when you will almost probably play the most significant role and be asked to provide the most information and financial records.
  • Legal due diligence. This part of the procedure comprises looking at your company’s legal aspects. Lawyers will examine your current contracts with vendors and assess them for any potential liability issues.
  • IT due diligence. During the IT due diligence process, a team of IT professionals will most likely be brought in to assess your company’s current technical resources. They’ll be looking for security risks, downtime issues, and other IT issues that may need to be solved before the transaction can go through.
  • Environmental due diligence. The team, as well as other interested parties that use the online repository, may wish to spend some time identifying potential environmental hazards associated with acquiring your company now or in the future.

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.

Why choose due diligence software instead of physical data rooms?

This process can be quite time-consuming, and the last thing any business would want to do is to waste time and money while at it. While a business may conduct due diligence for different reasons, VDR software helps to make the due diligence process more efficient by streamlining preparation into a one-time event rather than a long continuous one.

Security of corporate data

Most virtual data room providers understand how sensitive your business data is and the extent of damage that a data leak can cause to your company. Businesses can trust that there would be no data breach or unauthorized access to confidential documents as most VDR providers are ISO-certified. In the case of a physical data room, best efforts are made to ensure data is protected but these methods are not as effective as the security provided by online data rooms.

Maximum information control

A VDR allows you to effectively control how your data is used by others. No one can access, edit, or download a document during due diligence without your permission. You’re in charge of what you share with the due diligence team, as it concerns them.

Audit collaboration

During due diligence auditors can collaborate effectively using data rooms. They can share sensitive documents where necessary, ask questions using the Q&A feature, start fulfilling requests, and send direct messages. Some VDR providers offer video conferencing features, hence participants to the process can engage online from any location using the VDR software.

Parallel user access

The software enables parallel user access, allowing the team to work from different locations at the same time. This hastens the deal process, helping the due diligence team work faster, achieve more effective results, and come to consider conclusions in good time.

Easy file management

All files in data rooms are indexed within the system for easy access. This makes it easier for teams to locate files that are particular to them during due diligence. The VDR also allows an owner to exercise control over the shared files, as it applies to the team. 

Simplicity of interface

It will take you literally minutes to set up a virtual data room for due diligence. Its interface is usually very straightforward so that even the least tech-savvy users can understand how to interact with it. But if someone faces any issues – the support team is available 24/7. 

Ease of work

With virtual data room services, due diligence goes faster and more smoothly. You can assign task roles and all the invited new users will get notifications once a new document is uploaded or an existing one is changed. It allows other parties to react quickly and respond to changes in no time. A Q&A section is a collaboration instrument, where parties can ask questions to get quick answers.

Due diligence process using data room

Mergers and acquisitions are frequently complicated deals in the investment banking or fundraising process. While the two firms’ CEOs may agree to the deal, hundreds of bankers, attorneys, accountants, advisers, consultants, and other specialists are entrusted with analyzing the target company’s documents to guarantee a seamless transaction. The cloud storage and correct tools are required to not only assist but also enhance the work of the experts involved in these complex financial and legal assessment procedures.