How VDRs help teams meet due diligence requirements

Virtual data rooms are used by multiple users from many firms as a secure cloud solution where several parties in M&A deals may share sensitive data, including commercial, legal, and financial documents that can be shown to potential investors for evaluation and analysis. Prospective investors and potential buyers may easily access due diligence data rooms after receiving authorization from the seller and signing the NDA.

Due diligence ensures that parties to a transaction share a baseline understanding of essential facts. The documents and data, Corporate records, stockholder information and financial reports to be reviewed in due diligence are often electronic rather than paper-based. The digital nature of these records may make them vulnerable to hackers if they are stored and shared on consumer-grade, internet-accessible devices. That’s where tools like secure virtual data rooms, with specialized security and privacy controls, come in. They can help protect information while due diligence proceeds.

Whether traditional or online the Due Diligence Concerns remain the same

Buyers still want to determine whether a company for sale in an M&A deal faces risks to its sustainability and growth. Buyers tend to scrutinize a company’s financial performance to ensure it has not been overstated during the negotiation process. And buyers will likely be wary of large customers or gaps in the executive board that will be difficult to replace. This information often includes proprietary information or trade secrets. In the past, this information was protected by keeping it in a physical deal room, to which access was tightly controlled. Today, the same information may be shared electronically, but the same access controls can be implemented.

Cyber Security Due Diligence

Due diligence in the digital world also means examining issues related to technological privacy and security itself. Buyers often want to see evidence that the seller practices good cyber security and that it has sufficient means in place to protect any proprietary information or trade secrets. When these issues aren’t addressed, a company may face subsequent data breaches or privacy complaints, loss of business revenues, higher cyber security premiums, underperforming stock value, and loss of consumer confidence.

Secure virtual deal rooms like Docully VDR can help lessen the time required for due diligence without requiring the parties to take shortcuts.

Vitual deal rooms help reduce time commitments by making confidential documents accessible through a secured online system. When parties can access key information from anywhere in the world, they are saved the time and expense of traveling to a single physical deal room.

Addressing Cyber Security Concerns

A virtual data room, by itself, is not a substitute for sound cyber security and data privacy practices. However, the right VDR can help allay concerns about security and privacy in the deal-making process itself.

A VDR helps ensure that information cannot be removed from the deal room itself, either by the parties viewing it or by unauthorized third parties. Files cannot be copied out of the deal room and end up in unauthorized hands or sold on the dark web — a concern that cyber security due diligence should address.

With a secure means of reviewing data in place, parties involved in due diligence can proceed more confidently. Time and energy can be spent on the financial, regulatory and cybers ecurity details unique to the parties and the deal rather than on protecting those details from unauthorized intrusion.

The best practices for conducting remote due diligence:

Ensure Your Virtual Data Room Services Provider Have the Right Technology:

• Ensure Your Virtual Data Room Services Provider Have the Right Technology: Companies are using video conferencing solutions like Zoom, Webex, and Microsoft Teams to conduct virtual site inspections. Video also helps replace the face-to-face interaction that has always been a pivotal piece of the due diligence process. Building trust with any potential business partner is imperative, especially when millions or billions of dollars are at stake. By planning frequent video meetings throughout the process, all parties should feel more confident about the prospect of working together.
• Prepare for Longer Due Diligence Periods: Due diligence is already a lengthy process when conducted in-person, and for a good reason. Both parties want to be sure that the proposed deal makes sense, and that the other side is providing an honest representation of their business.You should adjust your expectations and allocate enough time in the M&A process for remote due diligence. 
• Be Mindful of Confidentiality Issues: Data privacy and security issues are elevated when due diligence is carried out remotely. Everyone on your due diligence team must be familiar with and follow your confidentiality policies, and only share sensitive data when necessary. Develop procedures for sharing confidential information to reduce the chances of your private company data inadvertently ending up in the wrong hands.
• Connect With the Right People: Connecting with your would-be business partners is essential during remote due diligence, especially if you’ve never met in person. Reaching out to your existing network – such as entrepreneurs, venture capital firms and co-investors – can help do much of the legwork for you. These connections can provide references and verify a company’s reputation, making it less likely that the deal will fall through. In the absence of such a network, you can also call on M&A advisors and lawyers to handle specific parts of the due diligence process.
• Have Organized Meeting Agendas: Having an organized meeting agenda, and adhering to it, ensures that all participants will efficiently share their information and concerns. Since holding virtual meetings lowers the barriers to attendance and enables more people to participate, ensuring every meeting has a detailed agenda will help keep things on track and on time.
• Communicate Often With Key Stakeholders: Clear, frequent, and honest communication among stakeholders is especially important during remote due diligence. Because doing business remotely is less personal than face-to-face connections, questions and concerns must be addressed promptly to avoid the risk of cold feet.

Must-have features of a virtual data room for due diligence:

• Security and compliance : Choose data rooms that offer superior data protection and digital rights management to avoid data leaks. It must have capabilities such as 256-bit data encryption, remote shredding, automated watermarking, limited viewing mode, and access management to assure document security.
• 24/7 technical support: Your virtual data room has to have the appropriate multilingual functionality to suit authorized users of various ethnic and geographic origins. This is especially important in cross-border M&A transactions.
• Advanced collaboration tools: Due diligence entails complicated transactions that might create a lot of problems. Make the conversation go smoothly by using virtual data rooms that allow you to post queries and receive responses quickly. Secure chats for seamless communication should be available in the data room for due diligence.By choosing a virtual deal room with due diligence in mind, parties to a merger, acquisition or other transaction can balance efficiency and data protection. The right deal room can help parties meet their due diligence requirements with tools and protocols designed for today’s digital world.