With COVID-19, many challenges came to the fore. More specifically, challenges arose with conducting due diligence in a manner that is dynamic and fast enough to enable companies to withstand and react to the challenges and opportunities in the disruption experienced across most industries.
The importance of compliance has taken center stage, and changes within various industries have been accelerated by the global pandemic. Some may argue that it is less about compliance and more about keeping operations afloat and governance under control with remote work and minimal face-to-face interaction. But, what does this mean for due diligence holistically?
In a merger and acquisition (M&A) deal situation, the buyer conducts due diligence to verify the accuracy of the target company or seller’s claims. The same goes for financing rounds where, during the due diligence process, potential financiers will thoroughly assess the business, assets, financial performance, and capabilities of the target company.
Visiting the target company for certain due diligence transactions is often required. However, with COVID-19, this has had to change. Companies have had to adjust their due diligence process to accommodate social distancing protocols.
With COVID-19 forcing companies all over the world to change the way they conduct business, we have entered a new era of global business. There is an increase in competition and digitalization, as well as compliance requirements regulation. This affects companies of varying sizes and, with these loaded changes, more M&As, joint ventures, and compliance audits are taking place.
For companies to stay abreast of regulatory changes, and with the current shift to a new normal, it is important to consider that face-to-face meetings now take place online. In addition, hard-copy documents that usually form an integral role are now inaccessible.
A host of problems arise when the administration, support, and compliance teams need to gather detailed information but don’t have access to the physical documents or are unable to travel to the target company. Covid-19 has forced companies to think differently about the operational aspects of compliance. Additionally, they have had to take a digital-first approach within the new-normal environment of working from home.
Working from home brings about its own set of challenges. This is because the responsibility is greater when looking at the security required in the virtual environment. How are you able to conduct face-to-face meetings, reference checks, and interviews without too much of a disconnect via a digital channel?
Certain aspects of a physical meeting simply cannot be transferred over to a virtual one. Moreover, it is of paramount importance that when migrating over to a digital environment all the information is trusted and verifiable and the digital platforms used are safe and secure.
A further challenge is not being able to access original documents, which are crucial for due diligence. Solutions, therefore, need to be found which involve a stress-tested method for providing equivocal verification of original documents.
Despite the challenges mentioned, there are solutions to help keep your company compliant and well-prepared for due diligence. The use of modernized digital platforms to store and share critical documents in a secure way needs consideration.
There is no doubt that face-to-face meetings will need to take place virtually. Employees, therefore, need to adapt to becoming comfortable with video calls and sharing important information virtually as opposed to traditional paper methods. For example, digital tools, such as all-digital meeting management, allow meetings to be scheduled and carried out in a paperless environment.
In the time of COVID-19, utilizing a platform where documents are created digitally from the start and stored in a centralized place is key. Having a secure, central database is also crucial now that more employees are working from different locations. It facilitates easier access and, with authorization and authentication measures, helps ensure security when reviewing digital versions of documents.
With the advancement of search tools, data is available instantaneously, irrespective of location and time. Having such a system in place contributes to your company’s due diligence readiness as all company information is easily accessible, which is critical for successful transactions.
With the impact of COVID-19, due diligence readiness is more important than ever before. The more prepared a company is, the easier the due diligence process will be. Thus, companies need to ensure that everything is poised and ready for a successful transaction or a compliance audit.
This means cleaning up and organizing accounting, legal agreements, the contract database, governance documents, IT, and human resources. They need to be ready to address all critical business, operational, and legal information in a transaction. For this purpose, having a virtual data room is critical in allowing potential buyers access to this type of important information.
So, to remain compliant and fulfill their due diligence requirements, it is essential for companies to implement digital tools for better governance within their organizations. These tools make governance reports, records, and information more searchable and accessible.
It suffices to say that traditional due diligence tools need to be reassessed so that there’s a distinct understanding of how the market landscape has evolved with the pandemic.
Companies must implement a more flexible, digital approach for business performance and records management. This will ensure that all data and information is readily available so that due diligence procedures can run smoothly and successfully in a potential transaction or compliance audit.