Due Diligence Data Room Guide

What is Due Diligence?

Due diligence is an overall audit of an organization that provides an objective opinion on the targeted company. There is a range of reasons why companies provide the inspection. In most cases, it is necessary to assess a potential investment object, evaluate the risks, and check its reliability, financial statement, or market position. The examination is carried out before starting to buy a business, a merger transaction, or another company’s cooperation.

data room due diligence

What is a Due Diligence Data Room?

Due diligence Virtual Data Room is cloud software for the providing company’s audit online. Companies use due diligence software to optimize the assessment process. VDR ensures high security and simplifies the work with documents. The companies use virtual data room for due diligence purposes that comply with digital security protocol, provides a flexible workspace, and process documents by several participants in the audit process simultaneously. VDR due diligence guarantees the high security of online space where all the corporate records and files are organized for a convenient due diligence workflow.

Who Conducts the Audit?

Due diligence can be carried out by the customer themself or with the help of professional consultants or other experts. Depending on the company’s size and the goals of the due diligence, a variety of internal and external specialists may be involved in the audit. As usual, the company audit conduct by the following parties:

  • Internal experts – employees of the company that are involved in the assessment.
  • Potential partners, investors, or other third parties who are interested in studying the results of due diligence
  • Third parties are any external independent experts or organizations that participate in the company audit.

The team can consist of financial, human resources, and legal personnel, economists, engineers, environmental experts, and other specialists. The effective implementation of the Due Diligence procedure depends on the well-coordinated workflow and software instruments that are used.

How to Set Up Digital Data Room for Due Diligence

  1. Prepare Due Diligence Checklist
  2. Install Data Room Software
  3. Structure the Folders and Subfolders
  4. Set Permissions and User Interactions
  5. Send the Secure Invitation Link to Users
  6. Upload Documents and Files
  7. Set Goals and Priorities
  8. Conduct and Control the Process Online

The experienced VDR providers help and accompany the process of organizing the due diligence data room software according to the company’s specifics and the objectives of the audit. VDR providers propose pre-prepared query templates that save the time of business transactions. The target company should open up the online data room to the buyer as early as possible. Virtual data room due diligence should have a logical structure and a full-text search function. New documents added to the data room should be marked and generate email notifications. The data room should permit bookmarking materials.

Due Diligence Data Room

Advantages of Virtual Data Rooms for Due Diligence

  • High Data Protection. Compliance with international requirements ensures secure data transmission. The virtual data room software allows not only to configure access modes but also to activate various additional protection measures (watermarks, protected access mode, limitation of work by time, or IP address).
  • Easy Files Management. Full control file access and analytics of all user activity.
  • Decreased Cost. Data room due diligence software optimizes a lot of the expenses for providing audits online.
  • Deal Speed. Secure access to a digital data room anywhere in the world significantly reduces the time for processing documents.

Due Diligence Data Room Checklist

How to Organize Virtual Data Room for Due Diligence? There is no strictly defined list of counterparty verification measures in regulatory documents. It all depends on the specific circumstances. For the court and the tax inspectorate, a set of standards for one taxpayer may be sufficient, but not for another. The following structure is the most convenient and easy to use for every user. The right data room due diligence structure allows the buyer to get a general view about the company and identify critical issues.

To optimize the due diligence workflow is necessary to implement easy use and logical structure of the document portfolio. Folders and Subfolders structuring are fundamental for process effectiveness. The correct due diligence data room structure simplifies future settings for individual access to documents. Also, it is crucial to use a correct document naming approach. The name of the paper must be consistent with the content. Using the irrelevant designation confuses the users, due diligence participants, and complicates the workflow.

Structure for Data Room Due Diligence

Main FolderSubfolder
CommercialSuppliers
Marketing
Commercial Policies
Customers
Environmental, Health and Safety (EH&S)Environmental
Health & Safety
FinancialAccounting
Finance
Operations
Insurance
Information TechnologyIT Administration
IT Security
Intellectual PropertyIP Registrations
IP Contracts
IP Litigation
IP Development
Human ResourcesHR Agreements
Benefits
General HR
HR Policies
Structure
LegalCorporate Organization
Management
Capital Structure
Legal
Real Estate
TaxTax Summary
Returns

There is no best structure for the data room due diligence process. Depends on the type of audit targets, the potential buyers or auditors can request a lot of different documentation. That’s why the Due diligence data room structure is based on the list of questions that potential buyer is interested. Nevertheless, the main first-line structure is quite similar for all the overall due diligence process.

How to Choose VDR Provider for Online Due Diligence

There are plenty of due diligence data room providers that ensure a lot of basic file-exchange features. To increase the efficiency of the inspection process is necessary to consider the availability of the following due diligence data room services:

  • Security Certificates Compliance
  • Data Security Services
  • Drag & Drop File Upload
  • Easily Manage Files & Folders
  • Ease of Use Features
  • User Management Services

First of all, it is necessary to consider the availability of security protocols, and certifications that ensure high-level digital security of the online audit process such as ISO 9001/ISO 27001. Check the services and certificates that guarantee valid online data transactions before choosing the VDR providers.