Buyer's Guide: Due Diligence Management Software

Corporate Development
Private Equity
Venture Capital
Last updated:
July 26, 2022

A recent webinar by Datasite revealed that average due diligence times for firms have shrunk by 39 days, increasing risks and adding significant pressure for deal teams. Fortunately, the latest data and technology is helping firms accelerate the due diligence workflow by surfacing, managing, and analyzing detailed, accurate, and up-to-date information about target companies. Let’s take a closer look.

The Anatomy of a Deal

To better understand where exactly due diligence management software fits in and how it can help, it's important to examine the entire M&A process and determine what benefits data can provide.

Step #1: Deal Sourcing

Deal sourcing using a private company intelligence platform has been shown to make firms more effective at both finding deals and providing a return on investment. With the right data, dealmakers can determine whether a company is a good fit for their investment theses before ever connecting with the founders or operators.

Using these tools, firms can gauge the business' health, employee turnover rate, public sentiment, competitor landscape, company milestones, and more. This not only helps you ensure the opportunity is promising and relevant for your firm, but also uncovers risks early on and can steer you to ask the right questions post-offer.

Step #2: Offer

If your firm moves forward with an offer, the data you collected in Step 1 can help with assertions on value, as well as streamline the negotiation process. Having this information at your fingertips puts you in a much stronger position to secure the best deal possible for your company or firm.

Step #3: Due Diligence

The research and analysis you conducted in Step 1 also comes in handy once your offer has been accepted by the target company. This data gives you a much stronger start in the actual due diligence stage of the M&A process and helps you avoid any major surprises or headaches. 

Due diligence management software builds on this foundation. It ensures your firm gains access to necessary internal and confidential company data, efficiently organizes all essential information, and helps you follow established procedures and due diligence workflows. 

Steps #4 & 5: Execution and Integration

Once all parties are content and legal requirements have been satisfied, the deal can close and the target company becomes part of your portfolio. This stage may sound simple and straightforward, but it also includes integrating with this new company. The data you collect in the previous stages of the merger or acquisition can give you much-needed context into the workings of your new portfolio addition and help streamline change management.

4 Questions to Evaluate Data Providers

The data you uncover during deal sourcing dictates how efficient your due diligence review will be. This is why choosing the right data provider is critical to managing the due diligence process. While there are many platforms available to help you find your firm's next acquisition, not all are created equal. Here are 4 key questions to ask to help audit a potential data provider:

  1. How accurate and complete is the data? Remember, your goal with this data provider is to identify companies that are a good match for your investment thesis and build the best foundation possible for post-offer due diligence. While it’s easy to get caught up in flashy AI capabilities, access to fresh, accurate data should always be your number one priority when evaluating these solutions.
  2. Will it help me track and monitor the companies I care about? Due diligence requires a deep understanding of a target company’s competitors, partnership opportunities, and even future add-on acquisitions. As firms compete increasingly on the basis of market intelligence, having a complete and detailed view of where a company sits in a particular space has become a critical component of the company research and sourcing process. Thoroughly mapping markets and receiving real-time alerts regarding relevant company activities not only improves sourcing success, but also significantly accelerates the post-offer due diligence workflow.
  3. How actionable is the data? Many data providers boast about the number of data points they offer, but more isn’t always better. Instead ask yourself, does this data provider offer information that is relevant to my investment thesis and goals? For example, if your firm focuses on bootstrapped companies, you would want to choose a data provider that specializes in surfacing information about founder-owned businesses, rather than one with millions of data points about public companies.
  4. How well does the solution fit with the rest of the platforms in my tech stack? Answering this question requires more than just checking a box around CRM integration or API offerings. Rather, take time to think about how data flows through your organization, where it adds the most value, and what gaps exist. Make sure whatever data platform you choose fits into this process and works well with the tools that you already have in place.

For more questions to ask and traps to look out for when evaluating data providers, watch this free webinar.

6 Questions to Evaluate Due Diligence Tools

In the due diligence stage, your firm adds internal and confidential company data to the mix to help verify the business’ claims, stress test any hypotheses or assumptions, and uncover potential risks. Asking these questions will help your team find the right due diligence tools to streamline efficiencies, enhance the dealmaking process, and both consolidate and utilize data:

  1. Can your team efficiently and effectively use the software? Ease of use must be your top concern in evaluating software procurement. The simple fact is: If your team won't use the platform, there's no point in having it. Engaging in a free trial and asking pointed questions throughout the procurement stage will help you ascertain the way the software actually functions, as well as how it will help your team do their jobs better.
  2. What type of data can the software store? Different types of data require not only different structures, but also different levels of security (more on this in the next question). You must make sure that you’re able to access and store all of the types of data you'll be collecting in the due diligence workflow — financial statements, intellectual property, employee records, etc. — in the appropriate (and accessible) format.
  3. Where will data be stored, and how secure will it be? Especially for global firms, regulations such as the GDPR have made data transferability and geolocation an increasingly important topic. For instance, depending on the data you're collecting, you may require that it resides in an EU data center. Data security and compliance are also major concerns, as certain types of data must follow specific rules (e.g. financial data may fall within PCI DSS compliance and employee data will likely be subject to HIPAA).
  4. How will the platform be integrated with the rest of your tech stack? Having your due diligence data locked away in a centralized location may sound like the secure option, but it's often the wrong way of looking at it. Your data is only as valuable as it is usable, so your due diligence management software must not only be able to securely manage your data, but also distribute it amongst the rest of the platforms your team uses.
  5. In what ways will the platform help you track the overall due diligence process? There's no doubt that due diligence is a long, complicated, and often arduous endeavor. One of your key concerns should be about how your new due diligence management software will help you track all the types of data you’ll have to collect and analyze, and what guardrails it puts in place to help guide the step-by-step process.
  6. How will the software better assess the potential risk from the merger or acquisition? Risk is the reason the due diligence workflow exists in the first place. Your due diligence software must be able to help you create risk profiles and assess deals in progress. More M&A software providers are harnessing artificial intelligence to help automate and improve parts of the risk assessment process.

Enhance Your Due Diligence Workflow

Less time to complete due diligence means firms must find new ways to streamline and accelerate the process without taking on additional risk. Leveraging the latest and greatest due diligence management software helps organize your workflow, improves data accessibility, automates risk assessment, and more.

Another proven tactic is to utilize data providers to gather more information and do as much company research as possible upfront during the sourcing process. To learn more about how to choose a private company intelligence platform that accelerates due diligence and helps firms avoid post-offer surprises, download this free buyer’s guide.

Similar articles you might be interested in