The Role of Due Diligence Data Room in M&A Process

Review financial records and other sensitive documents for M&A due diligence in a secure environment.


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Mergers and acquisitions (M&A) are often highly complex transactions. While the chief executives of the two companies might agree to the transaction, dozens of bankers, lawyers, accountants, advisors, consultants and other professionals are tasked with reviewing the target company’s documentation to ensure smooth sailing through the process. 


Due diligence is the process of reviewing any and all documents to support the decision to engage in the M&A transaction. In addition to accounting and financial statements, dozens and sometimes hundreds of other documents detailing the operational state of the target company need to be presented for review. 


Without the proper technology in place, M&A due diligence can slow the transaction or even prevent it from moving ahead. The right tools are necessary to not only support but also enhance the work of the professionals engaged in these highly advanced financial and legal review processes. 

What is
A Due Diligence Data Room?

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A due diligence data room is a secure online document management platform that hosts all of the documents necessary for a merger or acquisition transaction to move forward.


The acquiring company will need an easy and intuitive way to review all the relevant documents that give a complete picture of the financial and operational state of the target company. The presentation of the documents by the target company and the review of those documents by the acquiring company serve to support the decision to proceed with the transaction.


A data room is a location where stakeholders can access multiple documents related to a transaction. A virtual data room is an online repository of documents that includes security, access management and additional capabilities and resources to support the transaction.

Common Mistakes or Pitfalls in the Due Diligence Process

Here are a few common issues that often arise in the due diligence process.

Documents Are Still Paper Based and Not Digitized

While it might seem like most documents are accessible digitally these days, there could be some contracts or agreements which are still paper-based, especially if they were created several years ago. These documents need to be scanned and uploaded to the shared platform for review during the due diligence process. Locating these paper documents could also add to delays.


Unsigned, Incomplete, Incompatible or Out-of-Date Documents

Additional delays can occur if it is discovered that certain documents lack the proper signatures, are missing important information, are in an incompatible file format or have expired and are no longer valid. In anticipation of an M&A transaction, it is imperative that the parties involved begin the process of document selection and retrieval to ensure that there are no bottlenecks during the review.


Friction Between Parties

An M&A transaction and the associated due diligence process require the participation and cooperation of a range of individuals working both internally and externally to the companies merging. Not only do the proper documents need to be identified and selected, but the right people to evaluate them must be identified as well. Any friction between parties can create bias and challenge the due diligence process. This needs to be addressed well before document review begins.


Incorrect Permissions and Access

When individuals don’t have the correct permission level to access the appropriate documents, they cannot properly perform their review, and due diligence is slowed. The administrator of the data room needs to carefully consider any and all permissions for each individual and grant access quickly and appropriately. The right person needs the right access at the right time; if this isn’t carried out properly, the transaction can be delayed.


Information Overload

Just as there are issues with important documents that might be missing or incomplete, the reverse can also be a problem: too many documents. Proper document selection is key, and although any M&A transaction is complex, having too many irrelevant documents can slow the entire process down. Minimizing the number of documents to be reviewed can save time and move the transaction ahead more quickly.

Learn more


Why Modern M&A Needs Virtual Data Rooms


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Why is a Due Diligence Virtual Data Room Better Than a Physical Data Room?


Many people believe that document sharing is a rather common application today without the need for any features beyond what are already available from providers such as Google Docs, Microsoft OneDrive or Dropbox.

However, this could not be further from the truth. A virtual data room has features that consumer and even enterprise document-sharing platforms lack. These features are necessary to maintaining the security, privacy and integrity of the documents under review.

Indeed, a virtual data room is better than a physical data room for several reasons.


Speed of Document Review

Because parties are reviewing documents hosted online, each professional can review documents on a preferred device at his or her own pace. In a physical data room, oftentimes reviewers need to wait for others to finish reviewing a document before they can begin. By providing reviewers with their own digital copies that can be accessed anytime anywhere, the entire due diligence process is accelerated.

Fewer Administrative Personnel Needed

While there might be a handful of administrators managing access rights and uploads in a virtual data room, many more would be needed for a physical data room. Physical data rooms need administrators present at all times while documents are under review in order to maintain privacy and security. This can add significant expense to the due diligence.

More Specific Permissioning

While different groups can enter and exit a physical data room, each with access to different documents, individual access can be difficult. For example, an audit team may consist of both senior and junior-level professionals, and some documents might be appropriate for review for one group, but not the other. Virtual data rooms can provide specific individual access that physical data rooms often cannot.

Efficiency of Notes, Annotations and Communications

In a virtual data room, any notes, questions, annotations and communications with other parties can be created, maintained and shared directly in the platform. This provides tremendous convenience for all parties, and a continuous record of communications associated with each document is created to ensure that nothing gets missed. In a physical data room, individual reviewers would need to write their own notes for each document, and if the notes or questions need to be shared, administrators would need to route the notes as needed. This process is highly inefficient, as it can lead to errors.


Without the need to incur travel expenses for the team to review documents in person, or the need to rent conference rooms or pay for administrative personnel to physically manage or secure the documents, a virtual data room is the most cost-efficient option for M&A due diligence.

The cloud document-management solution is delivered as a service, and like all software-as-a-service (SaaS), it is delivered as needed. Organizations pay subscriptions based on the number of users, and if you need custom solutions, a provider will work on a set of options that best meet your team’s needs.


Virtual data rooms meet the strictest of standards for security and compliance. This adds to organizational efficiency, because the review teams will not need to engage an additional IT or security resource. 

Standards for virtual data rooms in M&A include:

  • SOC 1/SSAE 16/ISAE 3402
  • SOC 2 Type II
  • DOD CSM Levels 1-5


Documents are available online via any device, platform or operating system. Because the software is delivered as a service — via a web browser and a secure login — participants and reviewers do not need to download special software or upgrade their systems in order to use the data room. Documents are available for review 24/7 until the administrator revokes access.

Built-in IT

Browsers and operating systems are known to push upgrades at rather inconvenient times. The provider of the virtual data room handles and delivers all version upgrades, security updates and service as needed, without disruption to the team members reviewing the documents in the data room.

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How to Choose a Due Diligence Data Room: Must-Have Features


Document Control and Management

Documents can often number in the thousands of pages, so the virtual data room used during the due diligence process must be able to accommodate the upload and sharing of large volumes of documents.

Further, the system must be able to accept edits to the documents right in the platform. This is key, or else participants would have to download the documents to their devices, open them in the appropriate program (Word or Excel), make changes and then reupload them to the virtual data room. This is not only time-consuming but risky, as sensitive documents can easily be compromised when they leave the platform, even by mistake.


Easy Q&A

As with editing documents directly in the virtual data room without needing to download and reupload, the ability to ask and answer questions and make comments or annotations right in the documents is important.

In the due diligence phase, reviewers need to stay focused on the documents at hand. Leaving the platform to communicate via email or a channel messaging system (like Slack) is inefficient and also risky, as sensitive conversations shared via an unsecured connection could expose the transaction to outsiders. 


Customizable Permissions for User Groups

To facilitate the authorization process, a virtual data room should include the ability for administrators to grant permissions not only at the individual level but also for groups. This can be beneficial for M&A process that involves larger teams with outside consultants who only need access to certain documents.



Enterprise-level security, including digital rights management, encryption and watermarking of documents, is crucial to maintaining the confidentiality of the sensitive documents being shared and reviewed within the virtual data room.


Activity Tracking and Analysis

A virtual data room should enable administrators to track all actions and changes made within the workspace. These activities might include document views, downloads, uploads, permission changes and pages viewed.

This is vital, because administrators can determine which documents are being actively reviewed and which are not. In this manner, they can nudge the review team toward what is needed in order to maintain the speed of the due diligence process.

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Customizable Access Levels

Administrators can create a base structure that includes all of the documents. However, they should also have the ability to create different views and access levels or rights for the various individuals evaluating the documents. Content needs to be tailored and unique for each individual. 


Read-Only Access

Be sure that no document can be altered, copied, shared or printed without your permission. If a participant needs a different level of access, find out why and seek a solution that respects both parties’ need for privacy.


Tracking Measures

The data room should provide a mechanism to track who has accessed which document at what time and for how long. Any unusual activity, such as attempts to send or share a document to an unauthorized individual, can be identified quickly so that appropriate measures can be taken and any issues averted. 


The data room should enable you or other administrators to easily make updates, such as removing or adding documents or granting permissions to certain people, without much hassle. The interface should also be clean and intuitive.


Communication and Annotation

Commenting or annotation should be built into the data room. This facilitates the review process and doesn’t force investors or partners to leave the platform in order to send a message or make a comment.

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What Happens in the Due Diligence Data Room?

A range of individuals working both internally and externally to the companies are involved in due diligence. This can include bankers, lawyers, accountants, advisors, consultants and other professionals.


These professionals are given particular access rights to certain documents during the M&A. Via the virtual data room, they can not only read and analyze the content but make annotations and ask questions to other parties. The ability to comment and mark up documents is not only convenient but vital to the success of due diligence because reviewers can stay focused on the documents at hand without needing to exit the platform and use another communication or collaboration tool (email, Slack, Teams) to ask or answer questions.


Meanwhile, the administrators of the data room oversee who is accessing what and how. The virtual data room has features that allow administrators to turn document access on and off, route questions and answers, audit activity and generate reports on workspace usage. 

Areas Where Due DIligence Data Rooms Are Needed

Aside from due diligence performed for M&A transactions, there are several other types of due diligence and situations in which it is performed.

  • Financial Due Diligence

    While it might seem like something akin to an audit performed by an outside accounting firm, financial due diligence goes deeper. It aims to answer the “why” behind certain figures and paint a clearer picture of how the company earns a profit.

    Those who perform financial due diligence will look at how earnings are achieved, sales and revenue trends, working capital needs and liabilities related to human capital, IT and other investments.

  • HR Due Diligence

    This might be performed as part of an M&A transaction or not during any transaction at all. Companies might perform it in-house or hire an outside consultant with experience in human resources to conduct due diligence in this arena. 

    HR due diligence would include an examination of the organization’s total human capital, including employees, contractors, compensation, benefits, policies, legal challenges (for example, labor disputes) and any other financial and legal matters involving its people. Historical trends and forecasts, in addition to a comparison to industry benchmarks, can also be included in HR due diligence.

  • Legal Due Diligence

    Legal due diligence is also usually performed during the time of a transaction, but needn’t be confined to that. Any and all documents related to the organization’s legal structure and potential legal liability, including contracts related to joint ventures, partnerships, vendors and customers, would be covered under this process.

    It would also include intellectual property and licensing agreements, as well as loan documents or financing agreements with banks and lenders.

Learn more


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How Much Does a Due Diligence Data Room Cost?

Most online virtual data room providers, just like other SaaS providers, offer tiered pricing for services based on number of users, features or amount of data storage needed. 


There is no one-size-fits-all virtual data room. Speak with the provider to determine the optimal mix for your organization, and to find out what the policies are if you need to add or subtract features along the way.


The list here shows pricing variables for a virtual data room that differ between tiers. You can use this list to begin mapping the scope of services you need from a virtual data room. 

  • Amount of storage needed
  • Number of workspaces
  • Number of administrators (can upload documents, give permissions and track activity)
  • Number of users
  • Document management tools (including collaboration)
  • Level of document security
  • Level of customization
  • Level of client support (including training)


Better yet, start a free trial to get a feel for the features of a virtual data room.

How to Use Caplinked’s Due Diligence Data Room for M&A


While users of enterprise document hosting and sharing platforms are most likely aware of basic uploading, editing and sharing features, the advanced features of a virtual data room might be unfamiliar to them. 

A great way to start is to use a premade template, or to simply start uploading some test documents and get a better feel for the platform.

Ask a few colleagues to serve in a test group. Assign task roles, share test documents and ask them to make comments or annotations in the documents. 

Here’s how to get started:

  1. Go to the due diligence data room checklist.
  2. Start a trial.
  3. Check that the standardized folder structure is correct.
  4. Invite new users into the room.
  5. Start fulfilling requests by uploading documents.
  6. Assign user access to allow them to begin various tasks, including due dates for completing review of particular documents. 
  7. Adjust settings and access levels as needed.


While M&A transactions are highly complex, their associated due diligence doesn’t need to be. By leveraging a cost-effective, scalable virtual data room solution, organizations and their advisors can review documents at scale, accelerating the review process and ensuring that transactions proceed on schedule. The right tools in place actually facilitate the delivery of professional services, adding value to the transaction as a whole.

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Learn More About Due Diligence Data Room for Your M&A

What is due diligence?

Due diligence is the process of evaluating all of the necessary financial, accounting, legal and operational documents and records to ensure a successful transaction.

How long does a due diligence process take?

The general rule of thumb is 30 to 60 days. However, it can take longer, depending on the parties’ ability to assemble, share and review all of the necessary documents.

Why is due diligence a critical process during M&A?

Due diligence is critical because the companies and their advisors can have a chance to evaluate all of the necessary documents to support the transaction. Such varied documents, including market forecasts, product road maps and IT assets, can provide a deeper understanding of the target company’s operations and potential for future profit. Without due diligence, the acquiring company will not have the complete story about the company it plans to acquire.

Does the company need a virtual data room after the M&A process is done?

Yes, oftentimes they do. This is because after the transaction has closed, there is another process known as integration, during which the companies decide how to go about uniting parts of their operations. Secure document sharing and review are essential in post-merger integration.

Who should get access to the data room during the M&A?

In addition to the senior management of the companies engaged in the transaction, others should be given permission for access to the virtual data room during the M&A due diligence. These professionals include the companies’ bankers, lawyers, accountants, advisors, consultants and others tasked with reviewing the target company’s documentation to support the transaction.