With Data Room, you can protect the confidential data of the business during due diligence procedures. Here is more about software functions for business transactions.
Virtual Data Room: how the documents are prepared for a company audit?
Due diligence is a comprehensive assessment of the object of financing. Including tax, financial and legal due diligence of a business before buying or investing. The key task of due diligence is to minimize risks and form an objective picture of the potential attractiveness of the transaction for the client.
In the Data Room, the seller provides the buyer with a selection of previously defined documents about the company. The buyer checks the data or has it checked by a service provider. On the one hand, it is about getting to know the company better, but on the other hand, it is also about discovering hidden risks before making a purchase. is a physical or digital location where all of the company’s relevant data is collected. The service is usually only opened after a written declaration of intent and an agreement on the approximate purchase price of selected prospective buyers.
An examination only takes place after the buyer and seller have got to know each other, have agreed on the scope of the purchase price, and in most cases have already set the general conditions in writing. This is done with the help of a letter of intent, which stipulates the purchase intention in writing.
In exceptional cases, the buyer may be contractually guaranteed exclusivity before the test. The reason is that a company audit is very time-consuming and expensive. While strategic buyers (e.g. competing companies) or senior managers from the company often carry out an audit themselves or with their tax advisor, financial investors are often obliged to conduct an external audit. Such an examination is carried out by management consultancies or auditors and can quickly cost over 100,000 euros. This is also one of the reasons why financial investors rarely buy small companies: the effort involved in the examination is too great and therefore too expensive. While a strategist simply weighs up risk and costs, the financial investor has to comply with internal regulations towards his investors.
Data Room benefits for due diligence
There are the following reasons to use Data Room software in due diligence procedure:
- Sharing: Share large documents, e.g. from construction, with project staff or purchasing, and keep track of changes, comments, and versions.
- Collaboration: Work in a team without complex administration in secure project rooms with internal and external partners.
- Empowerment: Define in the specialist departments who is allowed to see, edit or delete which documents.
- Integration into any IT infrastructure Data Room document management software supports various methods of integration and builds all processes of movement and information processing in a company into a single logic.
- Secure data storage. The central task of the Data Room provider is the secure storage and defined access to the data for a certain time. The provider must guarantee that the data cannot be changed and that it is stored on several servers. In the event of any legal disputes, the Data Room is part of the contract and can be used by both sides. In this way, it can be proven that something has been disclosed or not disclosed. In practice, the room is handed over to the notary on a memory stick or CD.