Data Room Index: Perfect Your Folder Structure (+Template)
Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.
A data room index acts as a table of contents for the data room. It provides a guide as to where all of the documents inside the virtual data room are located in an organized, outlined structure.
Why Should You Use a Data Room Index to Organize Documents?
Using a data room index assists in staying organized in the due diligence process, due to the countless paperwork and information involved. Without an index, it can be difficult to locate files and documents, having to search through every file in the data room to find what you are looking for.
With the use of a data room, documents are searchable by name or by keyword. Plus, built-in assistive technology simplifies indexing and allows rearrangement as needed.
The Importance of Data Room Document Structure
The primary use of data rooms is to compile a large amount of information, including sensitive documentation, to be easily accessed by multiple parties during M&A ventures in a secure location. A proper document structure helps acquirers organize their data to clarify and validate key deal components in an easy-to-use manner.
A due diligence data room adds value by evaluating the benefits, costs, and risks associated with an upcoming decision. To prepare a data room for due diligence, the data room structure is very important.
While there are multiple organizational structures that can be beneficial, there is some key information to include in each data room when preparing for due diligence.
What to Include in Your Data Room
Specific data room examples of different folders to include in a data room’s table of contents include:
Claims and Disputes or Litigation
Government and Regulations
After determining which of these are relevant and most important for your company and business transaction, subfolders and topics can be organized in each of these folders. For further information, check out our complete data room checklist.
Some more specific examples of documents that are important for an M&A data room structure include:
Corporate structure, subsidiaries, and affiliates.
Related transactions over a period of 3 years.
Top 25 customers over a period of 3 years.
Customers that have ceased business over a period of 3 years.
Material sales partners.
Audited and unaudited financial statements.
Financial items, liabilities, or obligations that have not been previously disclosed.
4. Human Resources
Employee agreements and contracts.
Any compensation agreements.
Confidentiality agreements, non-compete agreements, NDAs, and non-solicitation agreements.
5. Intellectual Property
Rights to use IP not owned by the company.
Rights granted to another party to use the company’s IP.
6. Information Technology
Current or planned IT initiatives or projects.
Software purchase and maintenance policies.
List of IT resources.
7. Environmental, Health & Safety
Any environmental investigations, citations, or violations received.
Any environmental litigation over a period of 10 years.
Environmental remediation efforts.
5 years of results of tax audits.
5 years of property taxes.
5 years of any communications and agreements with tax authorities.
How to Organize Your Folders
When organizing the folders, consider your team structure and previous workflows that have worked well for your team. Here are some steps to follow in the organization process.
Create main folders based on categories or topics that encompass a broad range of information.
Create more specific subfolders to go within each of these main folders that organize the topic further.
Continue this process until all of the documentation is organized in a manner that makes sense and is cohesive with the overall storage structure.
Two examples of what this may look like, including general and more specific folders/subfolders:
If this organization process seems overwhelming, FirmRoom offers a free download for a data room template to get you started. Follow this link to make the indexing process easier than ever before.
While data rooms can be used and organized in a variety of ways based on what works best for your specific business or transaction, there are a few data room best practices to keep in mind.
Security.Security is the top priority of any data room. Top of the line security includes features such as ISO 27081 compliance, FINRA compliance, file backups, secure operation and file management, strong encryption methods, IP monitoring, and periodic checking of permission settings.
Ease of use.Choose a VDR that is easy to set up and navigate to alleviate the time spend on M&A transactions and the due diligence process.
Keep it organized. Follow the organization structure that you have set and check periodically to ensure that the data room structure has remained as organized as initially set up, making changes as needed.
Check analytics.Based on the documents and information that have been most accessed or not accessed at all, the indexing structure can be changed to reflect this information. This can provide insight and address any concerns.
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