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M&A Sector Criticises Inefficient Due Diligence

January 18, 2016

The secure cloud provider Drooms has developed the first standardised due diligence index for M&A transactions

London, 28. January 2016 – Seek and you shall find: this could well be the motto of many parties involved in conducting due diligence for an M&A transaction. After all, it takes a lot of time to thoroughly inspect a sales asset. And what’s more, the sheer scale of due diligence processes can mean that costs spiral out of control. Expert lawyers, consultants and auditors conduct systematic strength-weakness analyses and enable both sides to make substantiated assessments of a sales asset. Their respective hourly rates impact the overall cost of the transaction. In a quick poll, both clients and industry professionals were asked about a standardised index structure as a success factor for their transactions: More than 80% of respondents would like a standardised index to be established. For this reason, Europe’s leading provider of secure cloud solutions, Drooms, has devised a standardised due diligence index for the first time. The aim of this is to ensure more efficient and cost-effective due diligence processes in virtual data rooms.

Great Potential to Standardise M&A Transactions

According to the survey, more than three quarters (77%) of M&A experts conceded that there is further room for improvement in relation to standardising M&A transactions. The first efficiency killer can be identified right at the start of the process, when the index structure for the due diligence virtual data room is being set up – nearly 50% of respondents stated that they create a new index structure for every transaction. With regard to required content and index structure, all transactions tend to be very similar. With this in mind, 74% of respondents see saving time as the most major advantage offered by a standardised index. The index structure blueprint can then be adapted to the respective company and industry. The index covers all key points for due diligence checks, from the company itself (company structure, products, sales, IT, etc.), legal aspects (contracts, statutes, etc.) financials (annual accounts, assets, taxes, etc.) and staff (work contracts, bonus schemes, etc.). In this way, the risk of missing documents is minimised, which 64% of respondents view as a further advantage of a standardised index. Jan Hoffmeister, Managing Director of Drooms: “Standardisation will help all parties involved in a transaction to speed up processes and cut costs. In particular, the stages of preparing and processing documents stand to benefit.”

Thorough due diligence protects the management board

Both buy and sell sides have a vested interest in conducting thorough risk assessments: for the vendor, there is a chance to increase the transaction value if no deal-breaking issues are found, while due diligence protects the buyer against the risk of a bad acquisition and could enable them to secure a discount on the transaction value if a potential deal-breaker is found. Thorough risk assessments therefore also serve as legal protection for management boards. They assume responsibility for the deal based on the outcome of due diligence. A Q&A process integrated into the data room provides comprehensive reports on questions and answers which arise in the data room during the whole due diligence process. These controls ensure that all processes can be retraced even after the transaction has been completed. The virtual data room is a secure platform which increases efficiency in the crucial stages of an M&A transaction, from due diligence processes through to compliance.

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