How to Handle Corporate Data Privacy and Security Issues with the help of Data Room for due diligence?

Trends in the development of Data Room systems mean an imminent transition to a new era of digitalization, where data becomes more accessible, its search and processing faster, and business operations safer.

Digital transformation: Virtual Data Room for secure corporate activity

Scientific and technological progress has led to the widespread introduction of information technology (IT) in all areas of society. The role of modern IT is to increase the efficiency of functioning, profit, and competitiveness of the enterprise, not only by increasing the productivity of employees, improving the quality and speed of management decisions but also by organizing new ways of working with customers and suppliers. At the present stage of IT development, virtual technologies have begun to play an important role for the enterprise. An increasing number of enterprises are considering the transition to the cloud, which has enormous potential to dramatically improve efficiency without sacrificing performance.

Virtual Data Room is an integrated information system that provides multilateral user interactions for the exchange of information, and a secure digital repository for storing business data.

How does Data Room simplify the due diligence process?

Due diligence is a check for compliance of the actual status of the company with the declared one. The purpose of the procedure is to assess the benefits and liabilities of the proposed transaction. Due diligence for mergers and acquisitions in the process of studying the economic performance of the target company.

Let’s take a look at the main components of the due diligence process:

  • profit and cash forecasts;
  • the conditions on which the actual obtaining of the predicted values depends;
  • prospects for synergies, economies of scale after the merger;
  • availability of contracts with major clients/suppliers/partners;
  • the presence and condition of assets, their residual value, and legal purity of property;
  • current, long-term, and potential liabilities;
  • investigation of any recent changes in the financial system of the company;

In this way, the company data required for the investigation, such as annual financial statements, customer lists, contracts, contribution margins are provided by the seller in a so-called Data Room, in which they can be accessed by the prospective buyer within an agreed framework. This happens – depending on the desired confidentiality – either in the company or with the seller’s M&A advisor. The data can be made available physically (in files) or virtually (on CD or through server access). Furthermore, the scope and content of the data, the authorized access (buyer or his consultant), the period of due diligence as well as desired restrictions (making copies, interviews with key executives) must be clarified. 

All due diligence processes are logged (including which documents were made available) and the results are recorded in a final report. Sometimes the content of the data room due diligence is included as an attachment to the sales contract. The timeframe of due diligence depends on the size of the company and the data provided. Data Rooms are usually open to prospective buyers for between one and four weeks. He is required to use the available time efficiently and to appear with all the necessary advisors in the required capacity. Typically these are accountants, lawyers, and tax consultants, sometimes also actuaries and environmental engineers. The preparation of the due diligence report can also take a few weeks, but the purchase contract can already be negotiated during this time.