Technology has a way of changing how we do things. Take due diligence, for example. Companies performed due diligence pertaining to mergers and acquisitions long before the internet was a thing. So did individual investors, private equity firms, and angel investors. But when the internet and digital technologies found their way to due diligence, things changed. Today we have entire due diligence platforms based on digital technologies.
The question is this: what are due diligence platforms, exactly? Going one step further, are they absolutely necessary to conduct due diligence properly? The second question can be answered with a firm ‘no’. Due diligence platforms are a tool anyone can use, but they are not required. It is entirely possible to conduct due diligence without the help of a dedicated platform.
The wisdom of doing so is another matter. Technology brings so much to the table that it’s hard to justify not making use of it. To understand why that is so, let’s look at what due diligence platforms actually are.
1. Diligence in the Cloud
Due diligence platforms are cloud-based software environments used to conduct data-driven due diligence analyses, according to Utah-based Mezy. For the record, Mezy offers its own platform as part of its diligence-as-a-service (DaaS) menu.
In terms of visualizing what a due diligence platform accomplishes, think way beyond the simple exchange of information. Understand that due diligence is a two-way street. It starts with the target company preparing documentation and soliciting interest among potential buyers.
Those buyers conduct due diligence in two phases. The initial phase lays the groundwork for deciding whether or not there is any interest in the target. If there is enough interest to solicit a bid, the second phase of due diligence looks into the target’s finances, legal status, management team, valuation, and so forth.
Much of what goes into due diligence can be facilitated in the cloud. How so? Due diligence is a data-driven process. The cloud is the perfect environment for sharing and storing data. It is also ideal for analyzing data using a variety of cloud-based applications.
2. The Data Room
An important part of any due diligence platform is something known as the data room. What is the data room? It is a secure part of the cloud environment in which sensitive data is exchanged. The data room is controlled by permissions. Data found in it is often encrypted and permission-based for access purposes.
The advantage of putting this data in the cloud is found in the security of exchanging data digitally. By doing things online, buyers and sellers do not have to worry about producing and exchanging paper documents. But it gets even better. The cloud also makes data sharing faster and more efficient.
3. Cloud-Based Research Tools
Even though a lot of the work involved in due diligence is conducted in the data room, analysts and consultants also look outside. For that, they need research tools. Any due diligence platform worth investing in offers a complete menu of tools covering just about every research need.
Platform providers include these tools so as to ensure that their platforms are a one-stop destination for all things due diligence. They do not want their customers having to look elsewhere for additional research tools. They want them to log on to their platforms and not leave until all the work is done.
Due diligence platforms essentially are secure cloud environments through which the data functions of due diligence are performed. Are they necessary to conduct proper due diligence? No. But they sure do make the process easier, faster, more secure, and more efficient.