To facilitate work and save time during due diligence, it is very important to have all the necessary documents in one place, in a special room. Here is more about Data Room functionality.
Due diligence as an obligatory stage of the investment process
At present, it is becoming more and more obvious for market participants to manage the risks of their activities, improve financial management, and formulate a balanced investment policy. The formation of new relationships between companies, the need to modernize production, develop relations with investors, and the possibility of entering international capital markets have led to the fact that the requirement for transparency of activities today is no longer a fashion, but a mandatory requirement both for companies claiming leading positions in their markets, as well as and for smaller developing companies. The principle “Know your partner” is fundamental in choosing the form of business partnership and contractual terms for the implementation of a project or transaction.
A bank providing a loan to a client, an investor intending to acquire a business, a firm entering into a trade contract – they all want to be sure of the reliability and profitability of the transaction. Such confidence can only be based on complete, reliable, and objective information about the financial condition, legal status, and market position of the counterparty company. To collect and analyze the necessary information, the person concerned resorts to a special due diligence procedure.
Due diligence is a system or complex of analytical and operational measures aimed at comprehensive verification of the legality and commercial attractiveness of a planned transaction, investment project, procedure, etc. to avoid or minimize existing business risks (legal, tax, political, marketing, etc.).
Virtual Data Room software in due diligence procedure
The results of the work are based on the received internal information, legislative and internal regulations, data provided by competitors and partners of the company – the object of the study and are drawn up in the form of appropriate reports. In this case, large arrays of information are processed, so it is important to provide a secure collaborative workspace to make the procedure easier and more productive.
virtual data room due diligence facilitates the search for documents, makes it possible to ask the staff questions and conduct negotiations, and also allows the seller to somehow control the process of working with documents.
Document flow is important in decision-making, namely in their information support. The use of Electronic Data Room in due diligence will solve the following tasks:
- automate work with documents, such as finding and selecting the necessary information;
- exchange of documents through electronic systems, both internally within the company and externally – with other companies;
- control over the implementation of the tasks: appointment of responsible employees, determination of time frames, creation of separate groups for control;
- storage and use of documents in large databases and specially structured classification;
- the ability to recover lost documents, create backups on separate media.
Another advantage of using Data Room due diligenceis the great saving of time and money. For example, when collecting the necessary information. If you have enough information – it will be easier to make an effective decision. Usually, the information needed to make a management decision is expensive or difficult to access. Here it is appropriate to take into account the time spent searching for information, funds for support services, and other aspects of obtaining information. Therefore, the company needs to decide how much more profitable it will be to use an electronic document management system than ordinary paper support.