Unlike buy-side due diligence, in vendor due diligence (VDD) it is the seller himself who orders the audit process, thus demonstrating the authenticity of the financial statements offered about his company to potential buyers.
Thus, the seller requests an independent service provider to carry out a financial due diligence analysis with respect to his business, in the same way as if it were from a buyer’s perspective.
By providing a vendor due diligence to buyers, the seller avoids having to give exclusivity to any of them and can hold negotiations with multiple candidates until the end of the process.
The vendor due diligence is increasingly used for the advantages it presents. By not granting exclusivity until the signing of the purchase agreement, it maintains competitiveness and prevents buyers from closing in. In addition, it allows greater speed in the transaction, as it is carried out in parallel with other actions; it helps to mitigate detected contingencies, as they are presented from the beginning, and it helps to a greater probability of success of the transaction, by avoiding surprises.
The main disadvantage, on the contrary, of this type of action is the higher fixed cost that it entails for the seller, although the benefits mentioned above would outweigh the costs that it entails.
Other concepts of the month
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