The Due Diligence Process
Due diligence is the process of putting potential deal partners under the microscope
A key part of any major transaction like mergers & acquisitions, due diligence is a structured approach to careful examination of every part of a business.
Learn more: what is due diligence?
The process of undertaking due diligence is highly involved and can be a significant undertaking.
The key stages in due diligence are:
During any due diligence process, potential bidders will want to carefully scrutinize every aspect of the business being acquired.
To do this, they will methodically review all the documentation relating to each subject. To ensure due diligence runs smoothly, sellers must first prepare all these documents, organize them and ultimately make them available to bidders.
If bidders find gaps in the documentation, it can hold up due diligence and increase the risk of the deal failing.
Sellers can ensure their information is complete and well structured by downloading Ansarada’s free Definitive Due Diligence Checklist.
As you will be sharing huge amounts of sensitive documents for review and managing a complex Q&A process, you need a secure environment for organising and sharing documents as well as communicating with and tracking your potential bidders.
Virtual data rooms are highly secure online environments for doing just that. Unlike normal file sharing solutions, though, virtual data rooms are purpose-built for high-stakes transactions like M&A.
Despite their power and scale, a good virtual data room can be set up very quickly without any specialist knowledge.
Learn more: how to set up a virtual data room.
Disclosure of critical business information is the backbone of any due diligence, whether it’s for document review by the bidders or the extensive Q&A process.
It begins with sharing all the documents collected and prepared in advance of due diligence.
When sellers use a purpose-built virtual data room, sharing documents can be as simple as setting the right reading permissions for authorized users.
The document security and role settings in Ansarada Rooms make it easy to grant the right people access to documents individually or at the folder level. When access is no longer permitted, you simply revoke permissions inside the data room and out of it.
Much of due diligence will consist of potential bidders systematically scrutinizing each document shared with them.
The whole point of the exercise is to leave no stone unturned, and you can expect bidders to begin building a comprehensive list of questions for the Q&A component of the due diligence process.
Sellers will have less control over document review, but taking the steps to adequately prepare for it by compiling and organizing all the relevant documentation is crucial to the successful completion of this stage.
The back and forth between bidders asking questions and sellers responding with answers is the most intense stage of the due diligence process. As much as 70% of deal time can be spent on Q&A.
Throughout due diligence Q&A, bidders will ask questions to the seller who then directs the question to the right team member to draft an answer. The answer will come back the relevant bidder once it’s approved by the seller.
With multiple bidders and thousands of documents that questions can be about, Q&A can be a complex and time consuming process without clear roles and workflows.
Centralizing the due diligence Q&A process in the virtual data room makes sense. This places it in the same environment as the corresponding documents and it makes it easier to assign, track and follow up questions. This is especially true when you have multiple bidders asking questions.
Due diligence is a time for extreme caution - that’s really the point - but being careful shouldn’t end once the ink on the contracts is dry and the deal is done.
You still need to satisfy any compliance requirements you have, ensure you have a reliable audit trail and provide any proofs of disclosure required.
Ansarada Rooms are purpose-built to run the due diligence process from start to finish as securely, quickly and effectively as possible to maximize your outcomes and minimize your risks.