Virtual Data Rooms for Due Diligence. Benefits and Selection Tips

The data room industry continues to accelerate the global deal scape with innovative solutions and ever-improving technologies. Due diligence is one of the examples where a virtual data room is vital to the project’s overall success.

Explore the mechanics of modern due diligence and learn a few key tips to choosing the best data room for the task.

What is due diligence?

In the corporate world, due diligence refers to a process of assessing the commercial potential and value via thorough documentation analysis. Here are a few examples:

  • Exploring the opportunities of a possible purchase
  • Acquisition of real estate, equipment, or other assets
  • Corporate mergers
  • Investment portfolio diversification
  • Substantial charity donations

Historically due diligence procedures took up significant amounts of time and effort, as they involved the expertise of various experts and excessive volumes of data. What’s more, a data room for due diligence was a physical space that required the presence of authorized parties.

However, with the recent rise of the virtual data room market, the companies started to digitize the due diligence process, saving time and funds. And perhaps the biggest data room shift happened in the Mergers and Acquisitions (M&A) sector.

data room due diligence, virtual data room due diligence

Due diligence as an M&A stage

M&A deal handlers rely heavily on data room technology, allowing for both comfortable and safe workflow. When chosen correctly, a virtual data room will offer unique value at every stage of the operation.

  • Stage 1: Pre-marketing. The sell-side gathers all the necessary documents in a data room to prepare for the deal and take control of the situation.
  • Stage 2: Due diligence. The buy-side accesses the data room for due diligence to look into financial, legal, commercial, and other aspects of the seller’s performance.
  • Stage 3: Post-merger integrations and operations. All parties use the data room to ensure smooth and effective collaboration after the deal’s closing.

But what are the specific benefits of employing a data room for due diligence?

How can a virtual data room help with due diligence?

The main challenge of due diligence is exchanging data without compromising its confidentiality. This means multiple people with various roles and privileges will need to assess the data in a convenient and safe way. And that’s where the virtual data room providers come in to offer:

  • Strong data protection from every possible angle, including user-level and document-level control
  • Improved communications inside the data room that allow for faster and more informed decision making
  • Detailed activity reporting lets deal administrators keep a hand on the pulse of the whole process, addressing weak areas and attracting attention to the relevant tasks.

How to choose a data room for due diligence 

The first step of performing digital due diligence is selecting the right virtual data room. Here are the aspects to consider:

  • Software and hardware security

    Data room technology is a combination of advanced cloud computing and top-grade physical storage facilities. The following features indicate the provider’s commitment to ensuring high-level security:
    • At least 98% server uptime
    • Continuous data backups
    • Data transfer encryption using 256-bit AES keys
    • Unauthorized access protection via multiple-step authentication 
    • Versatile security configurations inside the data room
  • Security certificates and compliances

    Another approach to ensuring data room security is locating proof of certifications and compliances by independent organizations, such as:
    • ISO 270001
    • SOC 1 & 2
    • GDPR
    • HIPAA
    • FISMA
  • Intuitive interface

    An efficient virtual data room has to be technologically advanced and, at the same time, easy to understand to use. A simple, decluttered interface is always a great platform for productive dealmaking.
  • Multilingual support

    The data room provider’s support team has to be available on a 24/7/365 basis and speak enough languages to assist during international transactions.
  • Integrated Q&A and online chat

    Fast and effective communication is key to successful due diligence. Tools like built-in Q&A or chat will allow parties to collaborate without having to leave the platform.
  • Free demo

    The option to test the virtual data room for free can help to ensure all the above features are functioning as expected. Additionally, the users can choose to use the no-charge trial period as the time to set up and structure the data room for due diligence.

Data rooms for due diligence is the future

A virtual data room can visibly expedite the due diligence process during mergers, acquisitions, expansions, and other corporate transactions. Although choosing a suitable data room might appear challenging at first, knowing what to look for will make the job a lot easier. And the results of finding just the right data room for due diligence are extremely rewarding.