Data Room Checklist: What to Include for Corporate Transaction Success

A virtual data room (VDR) is a surefire way to smoothly conduct the due diligence (DD) process. It allows businesses to collaborate and manage confidential documents in a synced ecosystem with bank-grade security.

VDRs also provide templates to help companies conduct business assessments. Companies also develop proprietary due diligence checklists to enhance VDR workflows. This article explores the following aspects of the data room documents checklist:

• 7 business areas under M&A due diligence
• 4 DD challenges VDR checklists address
• 167 data room items for successful M&A

Defining purpose and scope

Due diligence is a comprehensive investigation an acquiring company conducts on a target company before closing an M&A transaction.

DD is developed by the M&A governance unit and conducted by functional teams. It helps to evaluate M&A targets, detect synergies, prevent risks, and integrate businesses.

Due diligence purposes require an acquiring party to dive deep into the following business functions of the target company:

• Financial
• Commercial
• Operations
• IT technology
• Tax
• Human resources
• Legal

When do companies need a due diligence data room checklist?

Target investigations can take over 90 days, with companies facing quality data issues and organizational hiccups across all six due diligence process phases. However, successful dealmakers heavily rely on dedicated M&A technology such as virtual data rooms when conducting due diligence.

A virtual data room is a secure workspace with M&A workflows, including Q&A, DD checklists, pipeline management, redaction, and team collaboration.

Accenture’s research has revealed that M&A tools, including virtual data rooms, can reduce the M&A lifecycle speed by three months and unlock up to $45 million in extra value for sellers and up to $30 million for buyers.

4 due diligence challenges addressed with the virtual data room checklist

Why is a checklist in a data room important? Successful dealmakers use data room checklists to address organizational and data management challenges. Based on our experience, a company should leverage an M&A data room checklist if it faces the following DD challenges.

Learn how to maximize due diligence organization with an effective data room structure.

Data room due diligence checklist case study: Ideals + StoneX Group Inc

StoneX, a century-old financial services franchise with over 300 OTC products and over $4.4 trillion in traded volume, has used Ideals virtual data room for DD and M&A since 2018.

Industry: Financial services, commercial hedging, global payments.

Pre-VDR challenges:

• StoneX experienced security challenges using traditional file-sharing solutions.

• StoneX’s DD workflows lacked document organization.

• The company required prompt information exchange and activity tracking.

VDR impact:

• Secure data storage and confidential document handling protected StoneX’s workflows.

• Bulk document actions, document labels, optical character recognition (OCR) search, and automatic indexing helped StoneX organize due diligence materials across several projects.

• Collaborating with bidders on separate projects helped the company retain workflow independence and reduce communication breakdowns. It improved overall deal room efficiency in all 34 StoneX projects.

VDR checklist impact: Developing, exchanging, and tracking DD checklists allowed StoneX’s DD teams to gauge more documents, reveal hidden issues, and improve transaction risk management.

List of essential data room documents

Naturally, depending on the M&A goals, the specifics of the due diligence requirements will also vary. Below is a universal yet comprehensive list of important documents to include in a virtual data room, categorized by business functions:

1. Financial
2. Commercial
3. Operations
4. IT technology
5. Tax
6. Human resources
7. Legal

1. Financial

According to the Deloitte survey, companies overlook financial issues to the extent that achieved values are 70% lower than anticipated. Also, acquirers overpay 30% on average as they fail to make accurate financial assessments. 

That is why quality financial DD is critical for post-deal success. It evaluates the target’s financial health and allows the acquirer to make an informed financial decision. If your business is seeking future investment or is considering mergers and acquisitions opportunities, make sure to add these financial documents in a data room.

Check an elaborated financial due diligence checklist for the most accurate deal valuations.

2. Commercial

Commercial due diligence investigates the target company from a business perspective, determining its performance, market conditions, and competitive landscape. It is a crucial part of deal valuation and provides insights into the strategic fit of the entire transaction.

3. Operations

Successful post-merger integration (PMI) contributes to 23% of M&A success, based on the Deloitte survey. However, over 60% of surveyed executives fail to realize post-merger synergies and integration targets.

Operations, the primary income driver for the merged entity, require careful investigations. Operational DD helps the acquirer understand integration vectors and develop actionable PMI plans.

4. IT technology

Over 70% of executives consider technology an M&A value driver, while 80% of excellent deal performers emphasize technology, the Accenture report says. At the same time, technology is a considerable risk. 

As much as 96% of Chief Information Officers (CIOs) revealed technology issues (during due diligence) impacting deal outcomes. Thorough technology due diligence reveals IT integration opportunities, technology value drivers, and, most importantly, cybersecurity issues resulting in multi-million data breaches.

5. Tax

Poor tax due diligence (TDD) results in improper deal valuation, unexpected expenses during PMI, and tax litigations. Thus, information about taxes is important to include in virtual data rooms for almost any deal type because it’s always a priority for potential investors to investigate. These are the tax documents in the data-room-for-investors checklist.

6. Human resources

As much as 30% of M&A transactions fail to meet desired financial outcomes due to cultural issues, common points of human resource (HR) management, Mercer’s report says. Culture clashes in M&A outline the importance of due diligence on the sell-side HR.

It allows merging entities to develop successful HR integration plans and maximize cultural alignment. HR due diligence is also where virtual data room security is especially important. Below are a few examples of HR-related documents to include in a data room.

7. Legal

Legal DD includes general information about the business, its owners, all the legal aspects of previous transactions, etc. It explores existing and potential issues in all the legal documents before, during, and after the transaction.

Successful legal document organization and review saves the deal, while overlooked issues, especially in the anti-trust realm, may dissolve mergers before closing agreements. Thus, 10% of large deals ($1 – $10 billion +) get canceled before finalization according to McKinsey. These are some of the most common legal documents required for an effective data room request list.

Key takeaways

• Data-room-powered DD checklists ensure safe collaboration, help companies clarify DD requirements, and enhance security compliance.
• A data room checklist contains documents from the main DD areas, including financial, commercial, operations, IT technology, tax, human resources, and legal.
• M&A industry statistics indicate that successful businesses carefully plan DD content within their data rooms to reveal transaction issues early and maximize deal outcomes.
• The content of the VDR checklist depends on your individual goals. By relying on the universal recommendations given above, you can create your checklist. However, you can also ask your VDR provider to assist you with the correct data room setup and a more detailed data room checklist.

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Data rooms

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