Due Diligence Materials
Chapter 1: Introduction to due diligence

Lesson 2: What is the due diligence process?

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IN THIS LESSON

Due diligence follows a consistent step-by-step process.

Here is a step-by-step guide of the typical due diligence process for mergers and acquisitions (or M&A) from the perspective of the buy side (Buyer) appointing a legal advisor to assist with document review.

  • Select Virtual Data Room (or VDR): The Seller sets up a secure virtual data room to share documents with the Buyer.

    Initial Request List (or IRL): The Buyer prepares an IRL of documents and information required from the Seller.

    Upload documents to VDR: The Seller uploads the requested documents to the VDR.

    Invite Buyer to VDR: The Seller invites the Buyer to the VDR so they can access the documents.

  • Duplicate Seller's VDR: The Buyer reviews documents within the VDR or downloads the documents and stores them in their own software (if they have permission to do so).

    Agree on scope of work: The Buyer and its legal advisor will agree what documents need to be reviewed and the nature of their review (e.g. ‘red flags’ only or a more detailed review).

  • Customize templates: The Buyer’s legal advisor customizes document review templates based on the scope of work.

  • Assemble document reviewers: The Buyer’s legal advisor assembles a team of reviewers, normally consisting of subject matter experts.

    Classify documents and assign documents to reviewers: The legal advisor classifies the documents in the VDR based on document type and assigns them to the reviewers.

  • Document review: The Buyer's legal advisor reviews the assigned documents, identifying any red flags and preparing document summaries of key terms.

    Compile Individual Document Reviews: The Buyer compiles the individual document reviews, comments, and findings from the review teams.

  • Draft Report: The Buyer’s legal advisor prepares a draft report summarizing the findings, risks, and recommendations from the due diligence process.

    Generate Final Report and Implement Recommendations: The Buyer’s legal advisor finalizes the due diligence report, incorporating the client’s feedback and outstanding requests for information asked of the Seller.