26 May, 2023

The information gleaned in due diligence allows the transaction parties to evaluate opportunities, identify risks, and make an informed decision.

Want to make a deal? Due diligence is the necessary first step. Due diligence is a thorough review of the financial and legal status of the companies and assets involved in the deal. For proposed transactions in finance, life sciences, tech, real estate, law, or any other industry, the information gleaned in due diligence allows the parties involved to identify and evaluate opportunities and risks and make an informed decision.

Here are the goals of a due diligence project:

  • Evaluate the financial health of the target company: Due diligence allows the acquirer to evaluate the financial health of the target company by reviewing its finances, including three to five years of financials performance reports, tax filings, profit and loss statements, the general ledger, accounts payable statements, and a schedule of the latest accounts receivable. Additional documents provide an inventory and assessment of physical assets, including real estate, manufacturing equipment, office equipment and supplies, inventory, and raw materials. These documents help to identify any potential financial risks and opportunities, which can impact the value of the deal.
  • Identify legal risks: Due diligence can help identify any lawsuits, pending litigation, or regulatory issues that create legal risks associated with the target company. This information can help the acquirer negotiate the terms of the deal, or to opt out of the deal altogether.
  • Understand the market and industry: Due diligence includes analysis of the industry and the target company’s ranking vis a vis its competitors. Information on new and existing products and services and their related marketing programs provide insights into how the market is likely to respond. Due diligence also identifies the decision-makers, with an organizational chart and names of senior executives, board members, and shareholders. This information can help in assessing potential growth opportunities or competitive pressures that would impact the success of the deal.
  • Build trust: By sharing the information gleaned in due diligence, both parties are providing transparency and a commitment to understanding the risks and opportunities associated with the transaction. The process builds trust and allows both parties to feel more confident in moving forward with the deal.

How to Organize Due Diligence Files

Years ago, the due diligence process was conducted in a sequestered room with walls of boxes filled with thousands of documents. In today’s digital age, that process is conducted online, in a VDR – a virtual data room. A virtual data room, sometimes called a virtual deal room, is an online platform specifically designed to house and access confidential documents.

Amassing all the necessary documents and providing expert analysis is a highly collaborative endeavor. Clearly, a due diligence process without the security protections of a virtual data room is risky. However, once an authorized user enters the VDR environment, he or she can securely access and share documents, and the due diligence team can work together to develop the due diligence report.

Organizing files in the VDR is a critical task. In the pressure-cooker atmosphere of due diligence prep, the team needs efficient and secure document management. Here are steps that the VDR administrator should follow to organize files in a virtual data room:

Plan your folder structure: Before uploading any files, plan out the folder structure that you want to create. Consider the types of files that will be stored in the data room and how they can be logically organized. It's helpful to create a folder hierarchy that makes it easy to navigate through the files.

Label and group files by category: Once you have created your folder structure, label and group files by category. For example, group all financial statements together in one folder, all legal documents in another, and all marketing materials in a third. For efficient use by the team, include status folders within each category, i.e., original archived folder plus in progress and final folders.

Use consistent naming conventions: Use consistent naming conventions to make it easy to search for files. Avoid using special characters or spaces in file names, as these can cause issues with certain software programs.

Create a master index: Create a master index or table of contents for your data room. This can be a spreadsheet that lists all the files in the data room, their location, and any relevant information about the file.

Use permissions to control access: The VDR administrator controls folder and file access through a user authorization permissioning process. The administrator identifies users and assigns passwords. For better security, use two-factor passwords and record the IP addresses of all user devices. Among authorized users, set permissions of which files he or she can access, and what uses are authorized, such as read only, copy/paste, print, download, and screenshots. User access can also be curtailed with end-dates for access, and individual documents can be marked with dynamic watermarks.

Monitor usage and progress: With the best VDR platforms, the VDR administrator has real-time monitoring information on user activity and document usage. This information not only assists in ensuring team productivity, but also creates a ledger of users and activity for use in due diligence submissions or regulatory filings.

Regularly review and update: Regularly review and update your data room to ensure that files are still relevant and up to date, including moving documents forward in the process until they are in their Final folders.

By following these steps, you can effectively organize your files in a virtual data room and ensure that your documents are easy to find, access, and manage.

Choose a VDR Provider that Provides Security and Organization.

Among VDR providers, ShareVault holds a special position: the company has been the VDR of choice for more than $50 billion in financial transactions, including IPOs. As a result, ShareVault is uniquely qualified to protect confidential documents and streamline the due diligence process.

In fact, ShareVault makes the arduous task of due diligence something close to easy, by providing a Due Diligence Checklist. The Due Diligence Checklist is a template preformatted with folders already organized into the most likely naming conventions. Other features, like bulk uploading, integration with popular file sharing apps like DropBox, Box, Google Drive, Microsoft SharePoint & OneDrive, and DocuSign, speed the initial organization of due diligence. Additional tools like auto renumbering, advanced search, and an interactive Q&A box for any document enhance the quality and efficiency of the process.

Learn More About the Best Due Diligence VDR.

ShareVault’s built-in tools and features speed up the due diligence process without compromising on 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!