VDR due diligence

How to facilitate the extensive due diligence process during the M&A transactions with VDR due diligence


Due diligence used to be a time-consuming procedure with many regulatory risks, but the advent of modern legal technology has drastically simplified it by removing it from the hands of attorneys and delegating it to automated programs. Merlin Piscitelli looks at how far this tendency has progressed since 2021 and how it will impact the legal industry in the next few years.

What Impact Can Technology Have on M&A Due Diligence?

According to a recent survey, EMEA markets were at the forefront of export and inbound transactions in the first half of the year, generating agreements totaling €578 billion – a 15% increase over H2 2020. Furthermore, compared to the same period last year, new EMEA projects on Datasite’s platform are up 40% year over year until July 2021. This upward trend speaks well for a long-term recovery, and it shows no indications of slowing in H2.

However, dealmakers must ensure that the actual administration of M&A is as safe as possible, otherwise they face financial penalties and even decreases in the deal value of target firms owing to unsecured data transmission procedures.

This dilemma will only grow more serious as we adjust to the new COVID age and adopt hybrid working styles, as M&A transactions  activity increasingly relies on collaborative technologies.

To ensure deal-making operations stay on an upward trajectory in the face of increased regulatory scrutiny, dealmakers must focus their efforts on maximizing compliance, as well as minimizing risk and privacy issues during the due diligence process. This is where technology may be of assistance.

Collaboration technologies are becoming increasingly important in dealmaking.

Communication and cooperation have grown more difficult than ever before, since legal teams are more scattered than ever before, in addition to managing an ever-increasing workload. Bespoke solutions are now critical to increase process efficiency, expand dealmakers’ capacity, and retain talent.

As a result, attorneys can concentrate on closing agreements rather than being distracted by unending streams of data.

Advanced analysis skills and virtual data rooms

The VDR due diligence landscape has changed dramatically in recent years. Gone are the days when a thorough examination of financial and legal documents was sufficient. Human resources, intellectual property, evidence of environmental, social, and governance principles, and tax issues have all been added to the scope.

Due to the massive amount of data that must now be analyzed, the due diligence procedure has become extremely difficult. On the other hand, virtual data rooms (VDRs) have dramatically enhanced the speed and security of transactions over the last decade by giving dealmakers instant access to the information they need to decide whether or not to pursue a deal further.

VDRs are once again altering M&A activity by enabling a number of procedures that make the due diligence process significantly more efficient, thanks to their superior analytic capabilities. Concerned parties can transmit secret information in an organized and transparent manner, increasing operational flow and using in-platform messaging and enhanced access control, as well as redacting or blacklining. VDRs may be enhanced with additional applications, such as two-factor authentication, to guarantee that security breaches are minimized throughout the due diligence process.

Gone are the days when a thorough examination of financial and legal documents was sufficient.