The due diligence involves the implementation of an investment study, on the results of which the risks of the transaction are determined and measures for their management are developed.
The concept of Virtual Data Room in due diligence procedure
With the emergence of new processes and phenomena in the capital market, new needs of users of financial information for more progressive types of audit and consulting services are emerging.
Due Diligence is a relatively new concept that has only recently been gained in business circles. This procedure, which otherwise can be called comprehensive financial and legal verification, began to pay more and more attention when concluding long-term contracts and investment projects planning. Dew Diligence helps to obtain objective information about the financial condition of the potential partner, its creditworthiness, etc., and thus reduce the risks of the planned transaction. The main purpose of due diligence is to assess risks when making decisions on the acquisition of an investment object.
Due Diligence can be carried out in any situation when it is necessary to identify and evaluate all possible risks that the investor can take hold when carrying out a transaction.
- When selling or buying a business, shares, real estate;
- Under the transactions of fusion, absorption;
- When creating joint ventures;
- When receiving a loan in the bank;
- When checking the reliability and solvency of a partner or counterparty.
Another issue of this procedure is security. For providing a reliable and secure environment for such business processes Virtual Data Room is used. It is the third party of the procedure, the owners and management of the target company agreeing on the terms of the investment research.So, it is computer infrastructure – that is, servers, data warehouses, software, networks, which are provided to the provider for deployment and work of the necessary clients of systems. All this is provided online, and therefore does not require our own equipment, it is a task of a service provider. In general, virtual data room reviews the due diligence procedure.
In what way does Data Room influence the due diligence process?
The essence of virtual technology is to transfer data processing from personal computers and workstations to servers on the World Wide Web. In the field of computer modeling, this means the deployment of software packages on the Internet. The user becomes not the buyer of computer programs and complexes, but their tenant, who is provided with various services. The form of purchase and sale of goods with the alienation of property rights from the seller to buyer changes to the form of lease, in this case – the sale is not a product, and services for its use by the customer without changing the owner of the product. At the same time, full correspondence of production capacities of infrastructure to actual needs of the user is provided.
Besides, customer data in the Data Room is protected inside the provider’s data centers. Many service providers are evaluated by independent external auditors. Their reports indicate how a particular vendor applies internal security management processes and how effective they are for those data centers where customer data is stored.
Data Room due diligence tasks include:
- identification of potential risks for the buyer when making an investment decision;
- assessment of the adequacy of the amount of profit/loss and identification of critical drivers of the transaction;
- confirmation of the buyer’s assertions regarding the financial position of the company’s object – purpose;
- identification of events that may affect the sales contract;
- improving the structure of the transaction;
- identifying areas to look out for after the deal is closed.