Virtual Data Room Due Diligence Checklist

It may come as a surprise to many of us, but the Covid-19 caused a massive boost in mergers and acquisition deals. As a matter of fact, a study concluded that 60 percent of the corporations and firms in the United States showed more interest in new deals in March 2020 than ever. However, the interesting fact is the timeline for these types of deals still increased despite this level of interest.

What could be the reasons behind that? Well, the first major issue was getting everybody on board simultaneously due to the work from home restrictions. Second, it was also very challenging to get approvals and certificates from the relevant authorities. These, along with several other new issues, made the process, especially the due diligence, lengthier than ever.

Work from home is still a norm in many regions, but there is a solution to quicken the due diligence process. Yes, we are talking about virtual data rooms also known as online data rooms.

What is a virtual data room?

Virtual data room is a secure file repository that allows users to store and share data in an organized manner. With the help of an electronic data room, you can communicate better with potential bidders and make things happen quickly and effectively. In short, virtual data rooms can automate the due diligence process and make it a lot faster.

However, it is better to prepare everything beforehand so that there are no possible delays during the process. We have compiled a checklist of all the documents for due diligence that must be organized at the virtual data rooms.

Due diligence checklist for a virtual data room

1. Business documents

These documents include the trade licenses, incorporation of the firm/company, and permits. Here is a detailed list of business documents

  • Tax information
  • Employment contracts of major company employees
  • Articles of incorporation
  • Municipality permits
  • Federal/state/local business licenses
  • Shareholder certificates
  • List of shareholders, M&A agreements, organizational chart, etc.
  • Material assets
  • Products and services

2. Financial documents

These are probably the most important documents during M&A deals from buyers’ perspectives. here is a complete list:

  • Audited financial statements such as Balance sheet, profit & loss statement, etc. for last three years (at least)
  • All financial agreements with the banks, such as loans.
  • The current business continuity plan
  • Strategic plans or forecasts
  • Auditor’s correspondence
  • Notes to accounts
  • Company’s debts and revenue streams

Also, it is important to present the assumptions behind the strategic plans, business continuity plans, and other forecasts.

3. Legal information

These documents primarily consist of firms’ agreements or contracts with other businesses or individuals. Here is a list of legal documents that must be organized for the due diligence process.

  • Distributor agreements
  • Lease agreements
  • Settlement agreements
  • Vendor agreements
  • Loan agreements
  • Regulatory and antitrust issues
  • Status of all legal cases with full descriptions
  • Environmental issues such as permits, evidence of compliance, environmental audits, etc

4. Human resource management (HRM)

Anything related to the workforce of the company, it may include:

  • Companies policies for its employees
  • Health and safety policies
  • Employees’ details, including their resumes/CVs, pay history, contracts, positions, compensation claims, etc.). Also, it is essential to add such details for outsourced employees.
  • Company’s training programs for its employees and detailed outlines of those programs
  • Appraisal policies
  • All terms and conditions related to benefits for employees (sponsored by the company)

This information is vital for the potential buyers to assess which policies they should keep and which ones need modifications.

5. Intellectual properties

Intellectual properties are a company’s intangible assets and are vital for potential buyers. These documents may include:

  • Intellectual properties such as trademarks, domains, copyrights, Good will, etc.
  • Surveyor reports
  • Valuation statements

Patents, Copyrights, Goodwill, etc., are intangible assets, and it is necessary to estimate their values with a more realistic approach.

Why should you use virtual data room software for organizing due diligence files?

Organizing due diligence files through online data room software has multiple benefits, such as;

  • Better searchability. Data room services allow you to organize data in multiple ways, just like a library where books are sorted by publisher, genre, or author. Most importantly, you can search and locate any file in a matter of seconds.
  • Speed. Sharing digital versions of documents is faster than sending paper ones from one location to another. This is why data room vendors also make a huge difference here.
  • Effective communication. Bidders often find it difficult to locate different files. Data room software allows you to organize the documents logically and sequentially, and you can easily communicate with bidders to make the process even more efficient.

Final words

Organizing all the relevant documents for the due diligence process is vital. It not only saves a lot of time but also increases the chances of closing a deal quickly. Hopefully, our due diligence checklist can help you set up a virtual data room, and upload all the necessary documents there.

If after reading our guide, you decide to opt for a data room solution, get acquainted with data room reviews on the best data room providers. These should help you make your perfect choice!

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