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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.

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What is A Due Diligence Data Room?

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.

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

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

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.

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Frequently Asked Questions

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

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