The so-called “Due Diligence” plays a very central role in company acquisition. Thus, it is worth taking a closer look at the role of the due diligence Data Room in the transaction.
How due diligence and Virtual Data Room are connected?
The development of computer systems, which was formed historically, necessitated the storage of more and more information in electronic form. Simultaneously with the improvement and further development of computer systems, the amount of information to be processed and stored increased. A theoretical basis for solving problems of this class was created, the implementation of which in practice resulted in systems designed to organize the processing, storage, and access to information. Later, such systems became known as Virtual Data Rooms.
Due diligence is an ancillary audit service that includes a complete study of the enterprise, based on the analysis of quantitative and qualitative indicators of the entity, as well as the system of management and internal control. Due diligence is a thorough study of key tax issues, contingent liabilities, risks. Usually, this procedure is performed when the company changes owner, agreements on investment of large financial resources are concluded between partners, there is a merger of companies, acquisition of small companies by large ones.
How does it work?
The term Data Room has its origin in the area of due diligence audits. In the past, a protected physical room, a so-called data room, was set up as part of a sales process during due diligence, to which only the bidders and external consultants involved in the assessment have access order to view and check the confidential documents collected there. In the course of globalization and the increasing spread of IT-supported document management systems, over the course of time, the physical data rooms were replaced by Virtual Data Rooms in order to remove their location-relatedness and to make their work easier for those involved in due diligence.
A Virtual Data Room is an internet-based application that enables secure, location-independent access to confidential documents. In the digital Data Room, all documents relevant for due diligence can be stored in a structured manner and made accessible to user groups (e.g. bidders) for reading access and/or download using specific access rights. The Data Room offers the highest possible protection when exchanging the data.
What are the results?
The best data room providers offer society the opportunity to present itself as a well-positioned and well-organized company. If the requested documents are quickly and completely available, the data room becomes the company’s flagship
The effectiveness of due diligence is that the implementation of this procedure allows you to:
- objectively assess the real financial condition of the business entity;
- clearly identify tax risks, including those characterized by latency;
- create a reliable information platform for realistic planning of the tax burden;
- to carry out an expert independent assessment of the organization of tax accounting at the enterprise;
- to develop a system of recommendatory measures, the implementation of which in practice will ensure the maximum reduction of the negative impact of tax risks on the activities of the business entity.