What is data room due diligence?

Written by C Wolsey

Do you own a business or a company? Are you looking for a permanent solution that will ensure that all your online business transactions are secure? A virtual data room could be the answer you have been looking for. If your company mainly deals with mergers and acquisitions, or or maybe you are looking to sell part or all your company shares, you will need to share information and answer sensitive questions in a carefully controlled manner. You may wonder how to do this.

But what exactly is a data room? A simple Data Room Definition is a physical space that is used to house data of a privileged nature. A virtual data room (VDR) on the other hand is almost similar to a physical data room except that all the confidential data is securely hosted online. Compared to physical data rooms where users must physically present themselves at the data room to view confidential data, VDRs enable multiple bidders to view and access sensitive data online, without risking unwanted viewership. 

If you are planning to consolidate your companies’ assets through a merger or an acquisition, a due diligence data room should be the first thing you should set up. 

What Is Due Diligence? 

Due diligence can be defined as the process of investigating or collecting information relating to a business or company. It is a legal requirement that must be carried out during a corporate takeover bid. 

The purpose of conducting due diligence is to ensure that the potential buyer evaluates the target company and all its assets and collects enough information before making an offer. The due diligence process is highly structured and complex. Failure to conduct due diligence properly can result in serious problems for all the parties involved. This is where a VDR comes in. A virtual data room can be your new best friend during the entire process of the merger and acquisition deal. 

How Will A VDR Assist You as You Conduct Due Diligence? 

Since the VDR is a secure and online environment that can hold large volumes of a company’s data, it will come in handy when sharing sensitive data securely beyond the walls of the organization.

All the interested parties can access the information from anywhere in the world as long as they have an internet connection. The security of the VDR is top-notch; encryption, multiple firewalls, disaster management plans, and individual biometrics are set up to ensure that nobody sees any data or document unless you authorize them to do so. What’s more, you can always control, monitor, and terminate the access of a party at any given time. 

How Do You Prepare Due Diligence Documents in the VDR? 

During an M& A transaction, the first thing you need to do is to agree with all the parties on which documents should be added to the VDR and which ones should be left out. For this to happen, a series of meetings between the buyers and the sellers involved should be carried out. 

Once a consensus of which documents should be uploaded has been reached, the next thing would be to assign responsibilities to the different users of the VDR. The user responsible for uploading data to the VDR should also ensure that all documents uploaded are the correct version and all information should be vetted before uploading. 

How you conduct due diligence in the VDR will mean the difference between a successful sale or a complete failure. Be sure to sign a non-disclosure agreement with all the parties before entering the VDR and ensure that proper controls are established for document protection.