Computer Security News

In the business world, Due Diligence refers to the process of investigating information related to people and businesses.

• This can be on a voluntary basis when conducting a background check on a future employee, or it can be a legal stipulation in investigations surrounding the legal issues in a corporate takeover.  
• The most common type of Due Diligence performed in business relates to a merger or acquisition (M&A).

The M&A process involves buyers and sellers of businesses connecting with other buyers and sellers to complete transactions so that one business buys another or two businesses combine into one.

For example, in a typical sell-side M&A deal, a seller develops a confidential information memorandum (CIM) and distributes that document to potential buyers.   When serious buyers step forward, letters of intent are executed and the seller discloses additional information with the prospective buyers.

This is the preliminary Due Diligence, and the point at which interested buyers investigate more detailed information to determine if they will submit a letter of intent to enter into a purchase and sale agreement and close the transaction.

Once a final buyer has been identified, the real Due Diligence starts.

It is at this point that the potential buy and seller have agreed to disclose all information related to the business so that the buyer can investigate the financial statements, tax returns, inventory, fixed assets etc. in an effort to verify their understanding of the state of the business and to decide on a purchase price.

In some cases, Due Diligence has been described as a process in which buyers look for the means to reduce their risk and reduce the purchase price before the close of a deal.

In today’s business arena , the process of Due Diligence has been streamlined by collecting the information in digital format (mostly PDF) and sharing it online in a virtual data room.  This has tremendous advantage over the distribution of paper or other digital media such as CDs, because large volumes of digital data can be shared online with many people in a matter of minutes.

By the time a transaction hits the due diligence phase, the participants have likely made the decision to move forward with the transaction. All they really need to do is confirm what they think they know and finalize the price. All involved are usually motivated to do this as expeditiously as possible.

Virtual data rooms accelerate the due diligence process and add additional value by providing industry leading security like digital rights management (DRM), and intelligent reporting of activity, providing visibility throughout the process, ultimately helping all involved better manage risk.