Vendor due diligence (vendor DD)
We want to help you in structuring your vendor due diligence plan. What is vendor due diligence? An experienced team prepares an effective due diligence review. This will give you the comfort that your company is well positioned for a business sale. Here is an overview of the vendor due diligence page:
- What is vendor due diligence?
- The objectives of vendor due diligence
- How does vendor due diligence differ from sell-side due diligence?
- When to start vendor due diligence
- The various parts of vendor due diligence
What is vendor due diligence?
Vendor due diligence (VDD) is a different term for sell-side due diligence. It is similar to buy-side due diligence but is originated by the seller. Hence, it is often also called sell-side due diligence. In the end, it is a full and independent review of a company before it will come up for sale. In the past, this used to be done by each buyer independently. However, over the last few years, sellers have learned it can be useful to do their own due diligence on their company. By doing VDD, the seller learns a lot about their company. Vendor due diligence can be described as the investigation and analysis of the seller’s company. A strong focus is on the financial business drivers that determine the future results. For this reason, the investigation can help with increasing the sales price for the company. In practice, most often the people that do the vendor due diligence also defend and explain the due diligence performed to the buyers. We are able to help you with vendor due diligence in Europe.
The objectives of vendor due diligence
Vendor due diligence is important and can be very useful. As a business owner, you can benefit tremendously by having VDD done. This process can provide valuable information to a seller which can sometimes be the difference between a successful or failed business sale. At the minimum, it can help in support of the proposed acquisition and possibly a better price. Briefly, vendor due diligence has the following objectives:
- Get an understanding of potential risks buyers will see in your organization
- Get a detailed understanding of issues in your company
- Spot material deal breakers (now there is still time to repair them)
- Increase the chances of selling your company successfully
- Assess the future order intake and see if there is further upside for the budget
- Clearly identify business drivers that are critical to the future performance of the company
- Get a critical opinion on a purchase price and possible ways to increase it
- Input to fine-tune and improve your business plan
- Prepare for buyers’ questions during due diligence (explain circumstances that will be questioned by prospective buyers)
- The seller’s management team will be less distracted by the process of the business sale. This will allow them to focus on running the day-to-day business.
- Prepare your management team for the sale process (get them comfortable with a thorough review)
- Show commitment to buyers in regard to a future sale
Especially when there are various interested buyers, having consistent reporting and documentation can reduce the time required for the sales process. Hence, sell-side (vendor) due diligence can help in decreasing the response time and minimizing obvious questions. Vendor (sell-side) due diligence will increase the quality of the offers received and maximize the value of a business sale. Hence, vendor due diligence will normally far offset the costs involved.
How does vendor due diligence differ from sell-side or buy-side due diligence?
The vendor due diligence process is essentially sell-side due diligence. In Europe, the process where a seller starts due diligence is normally called vendor due diligence (vendor DD), whereas in the US it is often called sell-side due diligence (sell-side DD). Sell-side due diligence can bring issues to light that a seller can still repair. Further, it will give a serious impression to buyers and ensure the due diligence process is run efficiently and in a concise time period. The difference between the vendor (or sell-side) due diligence and buy-side due diligence is simply about who commissioned the assignment. For more information on buy-side due diligence, please read about buy-side due diligence.
When to start vendor Due Diligence?
Normally, it’s best to start the vendor due diligence process early on. This can be just before the business sale process starts. If major material issues are found, they can be repaired first before the business sale is being kicked off. If the investigation brings up no material items, the process of the sale can begin. It is good to start the sale of the business straight after the vendor due diligence as the VDD team will also be involved in any pitches and presentations to defend the business in front of interested buyers. On the page selling a business, you can get a better idea when the VDD is normally conducted.
Information about the process of vendor due diligence
Please get in touch for a free brainstorming session and feedback on your vendor due diligence plans. We can discuss how the vendor due diligence process can best be organized. We are open to giving you clear feedback on how to structure your vendor due diligence process in your industry or country of choice. Further, we are also open to supporting you in the actual process and investigations.