The Role of Virtual Data Room in M&A Due Diligence

Mergers and acquisitions (M&A) are complicated transactions. Acquiring a business or merging two companies often involves hundreds of pages of documents that must be reviewed in great detail, from financial statements to legal contracts and more. The process of reviewing all documents pertaining to the decision to pursue an M&A transaction is known as due diligence, and it can be a lengthy step that slows the M&A transaction itself. A virtual data room may be exactly the tool business owners and executives need to accelerate the due diligence phase of M&A and get deals moving along more quickly.

Faster Document Review

A due diligence data room provides reviewers with their own digital copies of the M&A documentation. This allows all parties involved to review necessary documents remotely, whenever and wherever is most convenient for them. Physical data rooms often force users to share a single digital copy, which may require them to wait for other reviewers to finish using the document before they can open it. This drastically slows the review process when compared with the convenience and efficiency of a virtual data room.

This type of software is quickly becoming a go-to tool for even the largest of enterprises to move through due diligence quickly during M&A. For example, the virtual data rooms provided by Caplinked alone are used by nearly half of all Fortune 1000 companies. With speed and connectivity becoming increasingly important in the business world, this type of software-as-a-service is fast becoming a vital resource for businesses of all sizes.

More Efficient Communication

M&As require communication between dozens of different parties—from the executives at both businesses to bankers, lawyers, accountants, advisors, auditors, and more. All of these parties must be able to communicate efficiently to one another throughout the due diligence process to ensure all information is shared and all questions and concerns are addressed.

Virtual data rooms allow notes, questions, and annotations to be created, shared, and updated directly in the platform; in addition to improving communication between all parties, these features also create a formal record of all communications associated with the documents.

This differs from physical data rooms, which require individual reviewers to write their own notes for each document. If those notes need to be shared with others, administrators would then need to pass that information along. This process makes it more likely that notes and questions will be overlooked, while also impeding all parties’ ability to communicate.

Improved Security and Access

Above all, security is imperative to a successful M&A. The due diligence process requires the sharing of sensitive data that is central to both businesses’ operations. Many cloud-based document sharing platforms offer limited security and very few access controls. Virtual data rooms, however, meet the highest standards of security and maintain compliance with:

• SOC 1/SSAE 16/ISAE 3402

• SOC 2 Type II

• FISMA, DIACAP and FedRAMP

• HIPAA/ITAR

• DOD CSM Levels 1-5

One of the security features that is pivotal to maintaining compliance with these regulatory bodies is customizable permission and access controls. These features allow administrators to create different views and access levels for various individuals—not just groups of users—to tailor what documents and what information can be viewed, downloaded, and edited by every person.

A Quicker, More Confident M&A

When it comes to M&A due diligence, the process will likely always remain complicated. However, the right tools can streamline the process and allow your company to close the deal faster and with confidence that all documents have been reviewed, and all concerns handled appropriately. Virtual data rooms provide those tools, helping business owners and executives to move deals forward more effectively.

This article does not necessarily reflect the opinions of the editors or the management of EconoTimes