Data Room Checklist: What to Include for Corporate Transaction Success

Updated: Dec 28 ‘23 Published: Dec 28 ‘23 41 min read

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
Data Room Checklist

Defining purpose and scope

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

Due diligence in the M&A lifecycle
Due diligence in the M&A lifecycle. Source: Deloitte

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.

Due diligence challenges Data room value
Checklist value
A company fails to articulate due diligence requirements. VDRs provide a bigger picture of the process and ensure 24/7 access to DD files. M&A documents laid out in a due diligence framework are easy to oversee.
It ensures all relevant business aspects of the target company are captured.
Functional teams cooperate only among themselves, failing to exchange critical insights. A virtual data room ensures centralized communication between collaborators. A workspace with 24/7 access to M&A materials enhances cross-functional collaboration. The checklist serves as a central reference point for cross-functional teams. Sharing due diligence requests in the data room helps DD teams coordinate contract review processes.
Productivity deteriorates due to poor document organization across disconnected technologies. Automatic document indexing, document labeling, full-text search, and interactive document structures in VDRs help leadership and functional teams collect, categorize, and organize critical information. Enhanced with data room features, DD checklists ensure well-organized data storage and process tracking.
Security and data breaches involve catastrophic consequences for the due diligence process and deal value. Virtual data rooms secure due diligence workflows with granular access permissions, zero-trust authentication policies, and information rights management (IRM) tools. Bank-grade security throughout the M&A lifecycle minimizes data breach chances. Data room checklists with automatic Q&A workflows and notifications simplify security and compliance management.
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.

Still can’t make a final decision for your business?

Rely on our expert choice – iDeals VDR

Visit Website

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.

Financial aspect Documents
Financial statements and reports Equity capitalization table (cap table)
Copies of unaudited financial statements
Copies of audited financial statements (for at least the last three years)
Pro forma statements for the next year
Balance sheets
Profit and loss statements
Cash flow statements
Accounts receivable and accounts payable reports
Working capital reports
Financial reporting controls
Financial metrics and projections Third-party financial evaluations
Cash flow projections
Budgets
Revenue and operating expense projections
Capital expenditure plans
Key metrics and ratios: market, profitability, liquidity, solvency, efficiency
Sensitivity analyses
Assets and investments Investment portfolio breakdown
Historical documents on previous fundraising transactions
Venture capital financings
Fixed asset register
Asset maintenance procedures and expenditures
Asset management files
Depreciation schedules
Inventory valuation reports
Inventory turnover ratios
Property valuation reports
Debt and liabilities Debt schedule
Contingent liabilities
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.

Commercial aspect Documents
Market Industry reports
Target’s historical and projected performance against industry benchmarks
Target’s market position
Competitor analysis
Pitch deck
Customers Past and current customer lists
Customer satisfaction metrics
Strategic partnership agreements
Customer compliance records
Sales and marketing materials Target’s business plan
Brand positioning and awareness metrics
Sales strategies and marketing plans
E-commerce strategies and online presence
Target’s SWOT analysis
Distribution channels
Product lines
A product roadmap
Pricing strategies

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.

Operational aspect Documents
Production Standard operating procedures and production workflows
Quality control processes and reports
Capacity utilization reports
Equipment maintenance reports
Operational risk assessment reports
Environmental investigations
Supply chains Supplier lists
Supplies metrics and performance reports
Logistics and distribution performance records
Inventory management reports
Health and Safety Workplace health and safety policies and procedures
Incident reports
Emergency response 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.

Technology aspect Documents
Infrastructure Hardware and server inventory reports
Network architecture documentation
Cloud service usage reports
Software applications Lists of software applications and licenses
Software usage reports
Software update policies
Software documentation packages
Cybersecurity Cybersecurity policies and procedures.
Security controls
Incident response plans
Third-party cybersecurity audits
Penetration testing reports
Incident reports
Disaster recovery plans and testing records
Data privacy and protection Privacy policies
Data protection policies and practices
Data incident reports
Technology integration Technology integration roadmaps
Integration risk reports
Service documentation

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.

Tax aspect Documents
Tax policies Information on tax policies
Transfer pricing documentation
Tax compliance Tax returns for the last two years
List of jurisdictions where a target company pays taxes and files tax returns
Internal tax compliance controls and procedures
Schedule of upcoming tax compliance filings
Tax audits Schedule of completed tax audits for the last five years
Tax authority correspondence
Records of tax disputes
Tax reserves and liabilities Tax reserves on the balance sheet
Contingent tax liabilities
Tax exposure provisions

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.

HR aspect Documents
Workforce composition Organizational charts and reporting channels
Employee demographics reports
Key employee resumes
Turnover reports
Employee complaint records
Employee benefits and policies Benefits policies
Policies regarding sick days, overtime, and paid holidays
Appraisal policies
Insurance policies
Retirement plans and pension documentation
Employee handbooks
Training and development Details about training programs
Professional development plans and opportunities
Employee certifications
Leadership succession planning programs
Compensation Employee compensation structures
Incentive plans
Payroll records
Corporate culture and employee relations Corporate value and belief summaries
Leadership practice summaries
Decision-making approach analyses
Employee satisfaction reports
Employee engagement initiatives
Corporate culture assessments
Stakeholder communication reports
Labor union Labor union negotiations and relationship history
Related disputes and resolutions

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.

Legal aspect Documents
General information Articles of incorporation and bylaws
Organizational chart showing the corporate structure, including all the subsidiaries
Records of board meetings
List of jurisdictions where a target company is licensed
Financial Loan agreements
Shareholder agreements
Purchase agreements relating to the past, current, and future mergers and acquisitions rounds
Equity and debt insurance
Notable material contracts
Guarantees and indemnities
Warranties and representations
Commercial Vendor agreements
Distributor agreements
Licensing agreements
Sales and marketing contracts
Franchise agreements
Joint venture agreements
Operations Equipment and property leases
Manufacturing agreements
Service level agreements (SLAs)
Insurance policies
Research and development agreements
IT technology Escrow agreements
Technology transfer agreements
Human resources Employment agreements and contracts
NDAs and NSAs
Compliance Information about certifications and compliance a target company corresponds to
Tax regulation compliance records
ESG compliance reports
Data security and privacy compliance certificates
Antitrust filings
Regulatory approvals and permits
Open source software compliance verification records
Intellectual property (IP) Schedule of owned proprietary technology (software, systems, and databases)
Trademarks, brand names, slogans, logos, etc.
Copyrights
Domain names
IP licensing agreements
IP registration records
IP-related contracts
IP valuation reports
IP security agreements
Disputes and litigations Legal disputes
Intellectual property infringements
Past, current, and pending insurance disputes
History of legal settlements

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.

FAQ

Agreements, reports, and reviews from financial, commercial, operations, IT technology, tax, human resources, and legal areas are essential for an M&A data room.
Successful businesses update data rooms continuously based on the M&A progress and automatically record actions in audit trails. Active data room users may update VDR content daily as they complete M&A tasks.
Having an investor data room checklist is advisable for startups. A well-organized data room for startups builds trust, ensures a professional approach, and provides bank-grade security. These features enhance the fundraising process.

Elisa
Cline

Marketing specialist at datarooms.org

Elisa is a marketing specialist with 15 years of experience. She worked for many VDR brands and gained insider knowledge of the industry.

At DataRooms.org, Elisa conducts marketing research, develops content plans, supervises content teams, and develops VDR review methodology. She envisions her mission as distributing accurate knowledge of virtual data rooms.

“My mission is to deliver accurate and relevant knowledge of virtual data rooms to as many people as possible.”

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