The process of developing an M&A (Mergers and Acquisitions) offer is called due diligence. The process involves a deep-dive review of the financial and legal status of the companies and assets involved in the deal. The information gleaned allows the parties to identify and evaluate opportunities and risks and make an informed decision.
The due diligence project is a collaborative endeavor, anchored by a project team leader and often calling on participation by subject matter experts: industry analysts, lawyers, accountants, regulatory mavens. This group assembles a trove of confidential documents that can include:
- Financial reports, typically including three to five years of financial performance reports, profit and loss statements, schedules of accounts payable and receivable
- Assets, including inventory and physical assets like real estate, manufacturing equipment, office equipment and supplies
- Tax filings and records of suits and legal activity
Clearly, these documents must be haUnleash Power of Digital Collaboration Redlining Contracts in PDF Made Easyndled with care. Hackers and other cyber criminals monitor financial news and target M&A transactions. The due diligence team must follow extensive security protocols to ensure secure document sharing.
Steps to Enhance Secure Document Sharing during M&A
The M&A due diligence process demands the fastest possible results from a very complex procedure. Here are best practices to ensure the process remains secure:
Non-Disclosure Agreements (NDAs): Begin by requiring all parties involved, including potential buyers, sellers, and advisors, to sign NDAs. These agreements outline the confidentiality obligations and consequences of disclosure of sensitive information to unauthorized individuals.
Security Education: Educate the due diligence team on the critical importance of security and the potential risks of breaches. Walk them through the full range of security protocols to ensure best practices for secure document sharing.
Secure Data Room: Establish a secure virtual data room (VDR) to share confidential documents and information. A VDR is an online platform that provides password-protected controlled access to specific parties involved in the M&A process. Among VDR providers, ShareVault stands out for its many years in the M&A arena, as the VDR of choice for more than $50 billion in transactions.
Data Encryption: Implement robust data management practices to protect sensitive information. Best practices include;
- Encryption of data at rest – Note that ShareVault automatically encrypts each document with AES-256 as soon as it is uploaded to the secure VDR environment
- Encryption of data in transit – ShareVault file connections provide AES-256 encryption in transit via HTTPS over Secure Sockets Layer (SSL).
Access Controls: The VDR administrator controls access protocols and limits access to confidential data on a need-to-know basis. He or she assigns user credentials to authorized individuals that define who can view, modify, or download sensitive documents. The VDR software provides the administrator with the ability to monitor and regulate access privileges, which can change during the course of M&A due diligence.
Secure Document Sharing: The due diligence team needs regular access to confidential documents and the ability to share them among teammates. As long as access and sharing are done within the secure VDR environment, security is assured. The only security vulnerabilities occur when collaborators leave the security of the VDR and share documents using email, messaging platforms like Slack and Asana, or file sharing apps like DropBox, Box, Google Drive, and Microsoft SharePoint & OneDrive.
User Monitoring: Software within the VDR empowers the due diligence project leader to monitor user activity: what and by whom documents are accessed and shared, and what actions are taken (read only, edited, printed, etc.). These monitoring and tracking records are often required during an audit.
Third-Party Due Diligence: At some point in the due diligence process, the team will invite potential buyers or sellers to view the due diligence report. The offering team should first apply a due diligence examination of their security practices, breach history, and cybersecurity posture. Once assured that the party is properly attuned to security, the offering party can invite them into the secure VDR to view the offer and relevant supporting documents. The team leader can use ShareVault’s built-in software to monitor their adherence to VDR security protocols.
Legal and Regulatory Compliance: Stay informed about relevant legal and regulatory requirements regarding data protection, privacy, and information security, such as the General Data Protection Regulation (GDPR) or the California Consumer Privacy Act (CCPA) and comply with relevant regulations throughout the M&A process.
Incident Response Plan: Following security best practices will prevent security breaches in most cases. However, there is always the possibility of human error — a team member who attaches a confidential document in an email, or an analyst who shares an unencrypted data file. The team should have protocols in place to address security breaches and to quickly contain the damage, which may include a team of on-call cybersecurity professionals who are experienced in M&A security.
Start with a VDR Provider with M&A Experience
ShareVault, with its long history in M&A, is uniquely qualified to protect confidential documents and streamline the due diligence process. That streamlining includes the Due Diligence Checklist, a template preformatted with folders already organized into the most likely naming conventions. Other features, like bulk uploading, integration with popular file sharing apps, hierarchical tags, and advanced search, significantly speed the due diligence process.
ShareVault’s 24-hour Support
ShareVault knows that M&A is conducted in a pressure-cooker environment. The due diligence team can always contact their ShareVault for answers and tips — the support team is on-call 24/7/365.
Learn More About the Best Due Diligence VDR
ShareVault’s enterprise-level document security and built-in organization tools speed the due diligence process without compromising security. Since each company has unique needs, ShareVault feature sets and pricing are customized to fit your needs. To receive a customized ShareVault proposal, contact us today!