Due diligence is a multi-factorial and multi-stage comprehensive financial and economic analysis at the stage of structuring a business transaction. This article will explain how to optimize the due diligence workflow with the help of the data room software.
What is a due diligence data room?
Each business transaction requires an individual and structured approach – even the most easy-to-value assets require careful analysis. An attractive purchase price can lead to a negative effect. After the transaction, the buyer can be saddled with huge tax claims due to incorrect registration of the acquired company’s assets. In this case, due diligence is the most effective hedge for emerging risks. Any enterprise stakeholders can initiate the procedure: shareholders, the management, or third-party investors planning to acquire a share in the authorized capital of the organization.
During due diligence, a legal and financial audit of the company is carried out. As a rule, a deep check is carried out before M&A transactions. However, it is necessary to carefully analyze the state of affairs of counterparties not only before restructuring the business. This tool can be used widely. However, this legal evaluation involves large arrays of business-critical information that should be exchanged between contractors. Therefore, there is a need to organize a secure document management platform like a data room.
The software has the following functions:
- The system allows you to create draft contracts based on templates. Provides fast approval with the possibility of commenting by each approver.
- The system saves the history of agreeing and changing the contract, supports the versioning of contracts, automatically controls the contract terms, and, if necessary, extends them.
- It provides fast search by attributes and reliable centralized storage of documents.
- Accounts act, a package of documents of the counterparty are attached to the contract, which provides quick access to data from the contract card. It is easy to track at what stage and which of the employees currently has a contract or a document related to it.
In addition to cost savings, the introduction of due diligence virtual data room significantly speeds up the procedure for exchanging documents, which is especially important during reporting periods, or when counterparties are located geographically far from the organization and the delivery of paper documents is lengthy or difficult.
Data exchange at different levels of automation
Everyone who works with official documents and instructions knows the “Responsible Executive” concept. It is also sometimes referred to as the “head.” The employee is the first in the order (resolution) or is designated as responsible. As a rule, internal instructions for office work provide that the executor specified in the resolution as the first or reliable organizes the execution of the document and prepares a response – except in cases where each executor of the document must independently report.
Thanks to the capabilities of the due diligence data room, it is now easier for clerks and document executors to figure out whether everyone prepares an answer on their part or someone combines individual parts into a common letter. If each executor must prepare an independent response, the “Case” uses parallel resolutions. So, this software can make document management more efficient and easier.
Many documents and instructions in the data room are reference points for the subject business processes of the organization, which means that based on the software, it is possible to build systems for monitoring and managing business processes throughout the organization. Thus, the usefulness of investing in creating the initial infrastructure of the data room can be significantly increased if we go beyond the traditional perception of the software as one of the organization’s managing systems.