Due diligence may sound dull, but in reality, it’s anything but. It allows businesses to mitigate risk and uncover exciting opportunities during mergers, acquisitions, and more. Increasingly, due diligence software is streamlining these processes, allowing for faster transactions with better outcomes.
The flip side is also true: deals that go south can often be traced back to lack of or poor due diligence. For example, the Time Warner/AOL merger was meant to be a meeting of media powerhouses. Instead, it resulted in the largest ever annual loss a company has ever reported. Years of misery followed for investors and employees.
But it needn’t be that way. Due diligence software needs to make it simpler for businesses to comprehensively assess and verify every aspect of a potential deal or partnership. It can help you know when to forge ahead and when to run for the hills.
Let’s explore the role, types, and diverse applications of due diligence software and how your company can make a great choice.
Due diligence tools and platforms need to perform four functions with information related to the deal:
- Organization
- Management
- Analysis
- Data security
Due diligence software can handle large volumes of information efficiently. Crucially, it must ensure data security and confidentiality at all times. The most robust systems allow users to easily establish protocols to manage access to data, including controlling it after publication on the platform. This allows businesses to share their data while retaining control over it.
The most robust due diligence tools and platforms also provide a space for collaboration between the two parties. It provides a platform that allows companies to focus on the core functions of due diligence:
- Compliance Management: It’s often said that in due diligence, the only thing that stays the same is regulatory change. This aspect of the software focuses on ensuring both parties are playing by the rules–and, crucially, playing by the most up-to-date rules.
- Financial Analysis: Assesses the current financial health of a company and predicts its future performance by analyzing financial statements. Due diligence software brings together everything you need to make the right decisions.
- Project Management: These tools include task management and timelines. They also provide spaces for questions and answers and other collaborative features.
- Risk Management: Assists in identifying threats and opportunities inherent to the deal. This is possibly the single most important element, as it can raise red flags that can help your business avoid expensive–or catastrophic–mistakes. Having all the information in one secure place allows auditors to perform risk management effectively.
- Background Check: It’s important to know exactly who you’re getting into business with. Background checks delve into the records of individuals and entities that could have a bearing on the success of the deal. Coordinate this function and store data securely with due diligence software.
Types of Due Diligence Software
There are several types of due diligence software, with some platforms combining more than one to create comprehensive tools.
Virtual Data Rooms (VDRs)
Probably the best-known and most popular type of due diligence software, VDRs eliminate the need for physical data rooms. They provide a secure document management system that includes enhanced protocols to protect sensitive data.
Virtual data rooms are far more advanced than other, less secure file-sharing platforms. They track all document activity, including download history, who has viewed it, and when. They track comments, keeping investors, auditors, board members, and other key stakeholders on the same page.
Some require plug-ins, which limits their availability. However, more advanced VDRs are accessible across devices, putting the information you need at your fingertips at all times.
Due Diligence Management Platforms
These specialist project management tools allow you to create and assign tasks and monitor progress. They facilitate collaboration and ensure everyone has access to the documents they need and none of the ones they don’t need. Built-in messaging tools allow you to communicate with everyone or individuals about specific documents.
Due Diligence Software Use Cases
Virtually all sectors and transaction types can benefit from due diligence software. Here’s a rundown on the most common use cases:
Mergers and Acquisitions (M&A)
In mergers and acquisitions, due diligence takes into account the legal, operational, financial, and strategic aspects of the company being targeted. Due diligence software helps by bringing all the necessary information together into one secure space. This can help analysts work through the fine details more efficiently while maintaining confidentiality.
In addition, legal entities can be given select access to the documents they need to analyze for legal compliance. At the same time, other aspects can be kept off-limits.
Some M&A due diligence software includes features that support the question-and-answer stage of M&A due diligence. For example, CapLinked’s EZ M&A software allows for seamless communication and easy routing of inquiries to the proper parties.
Real Estate Transactions
In 2022, the total value of commercial real estate transactions was $1.14 trillion. That’s a drop from $1.43 trillion in the previous year, and the sector is under pressure. With a ton of struggling office buildings and shopping malls out there, the need for robust due diligence in real estate transactions is more pressing than ever.
Due diligence software can help you navigate complex real estate deals by focusing on three key areas: financials, compliance, and seller obligations. It gathers all the necessary documentation and ensures that the right people can collaborate on it. By providing a framework for analyzing legal documentation, they can bring to light issues with permits, title insurance, zoning issues, and more.
Private Equity and Venture Capital Investments
While these are two discrete forms of investments, they share many characteristics in terms of due diligence that the right software can help with. It brings together the documentation you need to make informed decisions into one space with enterprise-grade security. This can allow you to analyze market trends, review financial projections, and ultimately make better decisions.
Initial Public Offerings (IPOs)
Preparing for an IPO involves gathering and analyzing a huge amount of information, including financial disclosures, corporate governance practices, and legal documentation. Due diligence tools effectively gather this information and couple it with a user-friendly interface. This can streamline the due diligence process, preparing your business for a successful IPO.
Regulatory Compliance Audits
Regulations change constantly, and you need comprehensive workflow management software to ensure that nothing slips through the net. Bringing all your data together in a secure space can allow you to monitor regulatory changes and guarantee standards are met by implementing control measures.
Bankruptcy and Restructuring
Both bankruptcy and restructuring processes require you to gather a significant amount of paperwork as part of the due diligence process. Bring together your disclosure statements, restructuring plans, and general administration into one intuitively organized space.
Due diligence software can streamline the process, helping you to manage foreclosure, asset sales, and bankruptcy and effectively track each stage.
Biotech and Life Sciences
The science, biotech, and pharmaceutical industries handle significant amounts of sensitive information. This includes both proprietary, financial, and personal data. Due diligence software is essential for gathering and controlling this data to ensure that funding and approval procedures can reach the finish line faster.
Security regulations abound in this space, and due diligence software can help you meet your obligations. Track patents and intellectual property and ensure that only those you permit access to can see sensitive documents.
Legal Compliance
You likely find that as your company has grown and become more successful, the amount of legal documentation you are required to keep has increased exponentially. Due diligence software can help you keep this organized and secure, only permitting access to authorized individuals. Document storage can be adjusted to your company’s needs yet is combined with an easy to use interface.
CapLinked – Your Due Diligence Solution
Due diligence is a major undertaking. Specialist software platforms should help to simplify the process, but all too often, they are clunky and unintuitive. But it doesn’t have to be that way. Now’s the time to test drive CapLinked.
Our virtual data room technology provides a comprehensive suite of due diligence services. These include:
- Intuitive Dashboard: Our central hub that allows you to access workspaces, view activity reports, and monitor projects all from a single area. View the CapLinked dashboard anytime, anywhere, on any device.
- Secure Workspaces: These easy-to-set-up information vaults let you bring together everything your project needs to succeed. Simply drag and drop files into the workspace and set bespoke permissions.
- Document Management: Forget file-sharing applications. With our Safelink uploader, you can upload thousands of documents to workspaces in no time. Users can edit documents, but you remain in control. You can track all changes, add watermarks, and even control documents after they have been downloaded.
- Collaboration Tools: Communicate instantly with key stakeholders through the application or email them when they are not using it. Provide project updates and alerts to keep team members on track and fully aware of their responsibilities.
CapLinked is here to help you perform due diligence more thoroughly in less time, helping you clinch deals faster. Get ready to seize those opportunities. Start your 14-day free trial today!
