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The Perils of Using Microsoft Excel for Due Diligence

Kison Patel
CEO and Founder of DealRoom
Kison Patel

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.

CEO and Founder of DealRoom
“Think of a world without Excel. That’s just impossible for me.”

Satya Nadella, Microsoft CEO

It says a lot about Excel when Microsoft CEO views it as the company’s most important product - even more important than the Windows operating system.

He could be right.

Since its launch in 1985, Microsoft Excel has gone one to become one of the world’s most ubiquitous programs. It has been at the centre of many of the world’s largest deals in that time, helping dealmakers make sense of numbers past, present and future.

But its ubiquity has become part of the problem.

The expression “to a man with a hammer, everything looks like a nail,” is apt for Excel’s overuse. And despite its undoubted value, Excel’s ubiquity means that it’s still being used in functions where the value it adds is limited.

The examples below will show, Microsoft Excel, for all its undoubted brilliance, is not a substitute for a software specifically built for the due diligence process.

We begin with version control, a common headache for Excel users...

1. Version Control

Microsoft Excel Experience

Anyone that has ever worked in the due diligence process knows that the first excel file you receive is a shadow of what it will be by the end of the process. A good example is the seemingly never ending back and forth that occurs when participants in a deal seek to define extraordinary expenses in the income statement, ultimately leading to the creation of several ‘different’ income statements and a lot of confusion.

DealRoom Experience

Imagine. One place where all your diligence requests live and are updated in real time. You can see who edited what, leave notes for your teammates, and easily give access to those who need it. Just full transparency and none of the headaches that come with passing around the most updated version. DealRoom provides this peace of mind.

2. Work Centralization

Microsoft Excel Experience

What centralization?

The fact that a company is using Microsoft Excel already suggests a myriad of documents (not just in Excel format) moving back and forth between several parties.

So, it’s unlikely to be only the Excel diligence tracker where version control issues exist.

Extra documents require extra coordination and workflow, slowing everybody up as they check through old emails for the latest version of a file that they may not even have seen yet. The scope for human error (and dishonesty) is significant.

DealRoom Experience

One piece of software means one place for every document. Whether it’s a diligence request, verification of a document, communication request or minutes of meetings, it will all be held in a single folder (and its subfolders) on DealRoom.

In fact, DealRoom or any other good virtual data room, will provide the perfect antidote to virtually all of the problems located with centralization that you’ve come to associate with Microsoft Excel diligence trackers.

3. Security Features

Microsoft Excel + Email Experience

Microsoft Excel tracker allows you to encrypt the file using a password. It does the job well, even if, depending on who you’re talking to, there are ways around it (‘brute force’ being a theme that comes up time and time again).

There are major issues here: First, if you share a file, you’ll have to share the password, which makes it redundant straight away. Second, Excel files are copied and shared in two seconds. All-in-all, not an ideal medium for sensitive materials.

DealRoom Experience

In virtual data rooms, nothing is shared unless you want it to be shared. DealRoom allows you to see who’s viewing which file and whether to allow it to be downloaded. Otherwise, it’s just scrolling through documents on a screen. This ability to cherry pick who views what, when and how, drastically reduces the chances of any of your documents falling into the wrong hands.

Read also
How secure is virtual data room

4. Document Requests

Microsoft Excel Experience

Fulfilling document requests seems relatively straightforward until you try to put it into practice. First of all, the first document sent after an information request is made is unlikely to be the definitive version. In fact, it would be unusual if it was. Meanwhile, if you’re using Microsoft Excel, everyone on the email chain receives a soon-to-be outdated document. And even if you do manage to get the ‘definitive’ document, you’ll be asked for it more than once as it becomes lost in the never-ending web of emails.

DealRoom Experience

With DealRoom, you’ve got a systemized ‘new request’ tool, which allows you to categorize the request into the type of information it falls under (financial, legal, etc.), its title and a description. There are options to assign the request to certain individuals, set priority, labels and more. Furthermore, the request is only complete when it’s marked complete, so that everyone can see whether the document in your Virtual Data Room is the definitive version or not. In short, a much more streamlined and transparent process.

5. Communication

Microsoft Excel Experience

Anyone that has worked with Microsoft Excel documents will be familiar with the endless emails, with several people copied at once - most of the time when they don’t need to be. However, in the name of transparency, back and forth emails include everyone from analysts to senior team members from both sides of the transaction. A hugely unwieldy method for getting a message across, and security risks literally increasing with every mail sent.

DealRoom Experience

Virtual Data Rooms like DealRoom ensure that communication is kept under one roof and only shared with those that should have access to it. Furthermore, comments can be made on documents which mean that updated documents don’t need to be mailed back and forth countless times. Keeping communication in the VDR also means that sensitive emails cannot be forwarded to parties outside the deal. Teams can also tag each other in the comments for more direct communication.

6. Activity Data

Microsoft Excel Experience

Activity data in Microsoft Excel is limited and probably too limited for a process where it’s good to keep tabs on who’s doing what and when. Excel’s activity data shows who created the original document, who made the last edit, and how long the editing process has been for the document (which, incidentally, includes the amount of time that it was open on somebody’s desktop but wasn’t being used).

DealRoom Experience

DealRoom provides administrators with an overview of who was involved in the development of each document and to what extent, which documents were accessed and by whom, and how long users have been active in the VDR. Why is this important? Because you want your senior hands heavily involved in the due diligence process. If you see that an area - for example, financial statements  - hasn’t been accessed by your CFO, ask them for more input, to spend some time looking through the materials and to ensure that everything is in order. DealRoom also provides administrators with a detailed audit log if they really want to dive in and see all room activity.

Conclusion

Microsoft Excel is a world class piece of software that has enhanced all of our professional lives. But it cannot be a solution to everything. Due diligence is one area where it is of very limited benefit to those involved in the process. The benefits that Excel brings - computational power, cross comparison, statistical work - simply aren’t applicable to a process that requires communication, accountability and security.

DealRoom has been specifically designed to eliminate any requirement for Excel and emails. It is the only Virtual Data Room on the market with a ‘new request’ diligence functionality, completely streamlining the document request and sharing process. The added value provided by DealRoom is of a system which has been designed with the deal process in mind, rather than a traditional spreadsheet program such as MIcrosoft Excel.

“Think of a world without Excel. That’s just impossible for me.”

Satya Nadella, Microsoft CEO

It says a lot about Excel when Microsoft CEO views it as the company’s most important product - even more important than the Windows operating system.

He could be right.

Since its launch in 1985, Microsoft Excel has gone one to become one of the world’s most ubiquitous programs. It has been at the centre of many of the world’s largest deals in that time, helping dealmakers make sense of numbers past, present and future.

But its ubiquity has become part of the problem.

The expression “to a man with a hammer, everything looks like a nail,” is apt for Excel’s overuse. And despite its undoubted value, Excel’s ubiquity means that it’s still being used in functions where the value it adds is limited.

The examples below will show, Microsoft Excel, for all its undoubted brilliance, is not a substitute for a software specifically built for the due diligence process.

We begin with version control, a common headache for Excel users...

1. Version Control

Microsoft Excel Experience

Anyone that has ever worked in the due diligence process knows that the first excel file you receive is a shadow of what it will be by the end of the process. A good example is the seemingly never ending back and forth that occurs when participants in a deal seek to define extraordinary expenses in the income statement, ultimately leading to the creation of several ‘different’ income statements and a lot of confusion.

DealRoom Experience

Imagine. One place where all your diligence requests live and are updated in real time. You can see who edited what, leave notes for your teammates, and easily give access to those who need it. Just full transparency and none of the headaches that come with passing around the most updated version. DealRoom provides this peace of mind.

2. Work Centralization

Microsoft Excel Experience

What centralization?

The fact that a company is using Microsoft Excel already suggests a myriad of documents (not just in Excel format) moving back and forth between several parties.

So, it’s unlikely to be only the Excel diligence tracker where version control issues exist.

Extra documents require extra coordination and workflow, slowing everybody up as they check through old emails for the latest version of a file that they may not even have seen yet. The scope for human error (and dishonesty) is significant.

DealRoom Experience

One piece of software means one place for every document. Whether it’s a diligence request, verification of a document, communication request or minutes of meetings, it will all be held in a single folder (and its subfolders) on DealRoom.

In fact, DealRoom or any other good virtual data room, will provide the perfect antidote to virtually all of the problems located with centralization that you’ve come to associate with Microsoft Excel diligence trackers.

3. Security Features

Microsoft Excel + Email Experience

Microsoft Excel tracker allows you to encrypt the file using a password. It does the job well, even if, depending on who you’re talking to, there are ways around it (‘brute force’ being a theme that comes up time and time again).

There are major issues here: First, if you share a file, you’ll have to share the password, which makes it redundant straight away. Second, Excel files are copied and shared in two seconds. All-in-all, not an ideal medium for sensitive materials.

DealRoom Experience

In virtual data rooms, nothing is shared unless you want it to be shared. DealRoom allows you to see who’s viewing which file and whether to allow it to be downloaded. Otherwise, it’s just scrolling through documents on a screen. This ability to cherry pick who views what, when and how, drastically reduces the chances of any of your documents falling into the wrong hands.

Read also
How secure is virtual data room

4. Document Requests

Microsoft Excel Experience

Fulfilling document requests seems relatively straightforward until you try to put it into practice. First of all, the first document sent after an information request is made is unlikely to be the definitive version. In fact, it would be unusual if it was. Meanwhile, if you’re using Microsoft Excel, everyone on the email chain receives a soon-to-be outdated document. And even if you do manage to get the ‘definitive’ document, you’ll be asked for it more than once as it becomes lost in the never-ending web of emails.

DealRoom Experience

With DealRoom, you’ve got a systemized ‘new request’ tool, which allows you to categorize the request into the type of information it falls under (financial, legal, etc.), its title and a description. There are options to assign the request to certain individuals, set priority, labels and more. Furthermore, the request is only complete when it’s marked complete, so that everyone can see whether the document in your Virtual Data Room is the definitive version or not. In short, a much more streamlined and transparent process.

5. Communication

Microsoft Excel Experience

Anyone that has worked with Microsoft Excel documents will be familiar with the endless emails, with several people copied at once - most of the time when they don’t need to be. However, in the name of transparency, back and forth emails include everyone from analysts to senior team members from both sides of the transaction. A hugely unwieldy method for getting a message across, and security risks literally increasing with every mail sent.

DealRoom Experience

Virtual Data Rooms like DealRoom ensure that communication is kept under one roof and only shared with those that should have access to it. Furthermore, comments can be made on documents which mean that updated documents don’t need to be mailed back and forth countless times. Keeping communication in the VDR also means that sensitive emails cannot be forwarded to parties outside the deal. Teams can also tag each other in the comments for more direct communication.

6. Activity Data

Microsoft Excel Experience

Activity data in Microsoft Excel is limited and probably too limited for a process where it’s good to keep tabs on who’s doing what and when. Excel’s activity data shows who created the original document, who made the last edit, and how long the editing process has been for the document (which, incidentally, includes the amount of time that it was open on somebody’s desktop but wasn’t being used).

DealRoom Experience

DealRoom provides administrators with an overview of who was involved in the development of each document and to what extent, which documents were accessed and by whom, and how long users have been active in the VDR. Why is this important? Because you want your senior hands heavily involved in the due diligence process. If you see that an area - for example, financial statements  - hasn’t been accessed by your CFO, ask them for more input, to spend some time looking through the materials and to ensure that everything is in order. DealRoom also provides administrators with a detailed audit log if they really want to dive in and see all room activity.

Conclusion

Microsoft Excel is a world class piece of software that has enhanced all of our professional lives. But it cannot be a solution to everything. Due diligence is one area where it is of very limited benefit to those involved in the process. The benefits that Excel brings - computational power, cross comparison, statistical work - simply aren’t applicable to a process that requires communication, accountability and security.

DealRoom has been specifically designed to eliminate any requirement for Excel and emails. It is the only Virtual Data Room on the market with a ‘new request’ diligence functionality, completely streamlining the document request and sharing process. The added value provided by DealRoom is of a system which has been designed with the deal process in mind, rather than a traditional spreadsheet program such as MIcrosoft Excel.

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