{"id":4829,"date":"2024-09-30T11:24:43","date_gmt":"2024-09-30T09:24:43","guid":{"rendered":"https:\/\/maraz.es\/?p=4829"},"modified":"2026-10-12T18:57:24","modified_gmt":"2026-10-12T16:57:24","slug":"the-advantages-of-vendor-due-diligence","status":"publish","type":"post","link":"https:\/\/maraz.es\/en\/the-advantages-of-vendor-due-diligence\/","title":{"rendered":"The Advantages of Vendor Due Diligence"},"content":{"rendered":"

For most middle-market business owners, selling the company is the most important financial transaction of their lives, and also the most asymmetric: the buyer \u2014 a fund, a trade competitor, a search fund<\/strong><\/a> \u2014 does acquisitions frequently; the seller, almost never. That difference in experience is paid for at the negotiating table. Vendor Due Diligence (VDD)<\/strong> is precisely the tool that rebalances the scales: it allows the seller to come to the negotiation with the same level of information and preparation as the party opposite.<\/p>\n

In this article we explain, from the seller’s perspective, what a VDD is, what concrete advantages it brings, when it should be commissioned, how much it really costs and how it fits into the sale process as a whole. The underlying thesis is simple: a company that is sold prepared is worth more, sells sooner and exposes its owner to less subsequent risk.<\/strong><\/p>\n

What Vendor Due Diligence is (and how it differs from the buyer’s)<\/h2>\n

Selling a well-prepared company is not the same as simply selling a company. Vendor Due Diligence is the tool that makes the seller the owner of the process: whoever controls the information controls the negotiation.<\/strong><\/p>\n

Vendor Due Diligence is an exhaustive review of the company commissioned by the seller itself \u2014 the shareholder or shareholders \u2014 ahead of the sale.<\/strong><\/p>\n

The difference from traditional due diligence is one of initiative and purpose<\/strong>. In classic due diligence<\/strong><\/a> it is the buyer who investigates the seller to find risks that justify lowering the price or demanding warranties. In a VDD it is the seller who investigates itself, first, to find those same risks earlier and correct them<\/strong>, arriving at the negotiation without surprises the buyer could use against it. It is worth understanding this distinction of approaches properly, which we develop when comparing financial due diligence with an audit<\/strong><\/a>: it is not a matter of formally validating the accounts, but of understanding the real quality of the business.<\/p>\n

The scope of the VDD can cover all the relevant areas of the business: financial, tax, employment, legal, etc., depending on the company’s activity and the expected sophistication of the buyer. The result is an independent report \u2014 prepared by reputable advisers appointed by the seller \u2014 which is handed to potential buyers during the process, reducing the information asymmetry that characterises any M&A transaction.<\/strong><\/p>\n

VDD vs buyer’s due diligence: key differences<\/h2>\n

Both processes share a methodology, but their perspective, purpose and consequences are radically different:<\/strong><\/p>\n\n\n\n\n\n\n\n\n\n
<\/td>\n\n

Vendor Due Diligence (seller)<\/strong><\/p>\n<\/td>\n

\n

Buy-side Due Diligence (buyer)<\/strong><\/p>\n<\/td>\n<\/tr>\n<\/thead>\n

\n

Who commissions it?<\/strong><\/p>\n<\/td>\n

The seller<\/td>\n\n

The buyer<\/p>\n<\/td>\n<\/tr>\n

\n

When is it carried out?<\/strong><\/p>\n<\/td>\n

Before starting the sale process<\/td>\n\n

After signing the LOI or preliminary SPA<\/p>\n<\/td>\n<\/tr>\n

Who controls the scope?<\/strong><\/td>\n\n

The seller<\/p>\n<\/td>\n

\n

The buyer<\/p>\n<\/td>\n<\/tr>\n

\n

What happens to the findings?<\/strong><\/p>\n<\/td>\n

The seller corrects them or explains them with context<\/td>\n\n

They are used as a lever for price adjustment<\/p>\n<\/td>\n<\/tr>\n

\n

Ultimate objective<\/strong><\/p>\n<\/td>\n

Maximise price and speed up the transaction<\/td>\n\n

Protect the buyer from hidden risks<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

The practical difference is decisive: in a buy-side DD, every negative finding automatically becomes an argument to reduce the price, request additional protections (indemnities, escrow) or abandon the transaction. In a VDD, those same findings are identified months earlier, the seller corrects or explains them with context, and reaches the negotiation with no exposed flanks.<\/strong><\/p>\n

Types of Vendor Due Diligence<\/h2>\n

The VDD is structured into different areas that are activated according to the characteristics and sector of the company:<\/p>\n\n\n\n\n\n\n\n\n\n\n
\n

Type of VDD<\/strong><\/p>\n<\/td>\n

What it covers<\/strong><\/td>\n\n

Why it matters<\/strong><\/p>\n<\/td>\n<\/tr>\n<\/thead>\n

\n

Financial<\/strong><\/p>\n<\/td>\n

Normalised EBITDA, Quality of Earnings, NWC, FCF, Net Financial Debt<\/td>\nThe most common. The basis of the transaction price.<\/strong><\/td>\n<\/tr>\n
\n

Tax<\/strong><\/p>\n<\/td>\n

Corporate income tax, VAT, withholdings, transfer pricing<\/td>\n\n

Detects latent tax liabilities before the buyer uses them.<\/p>\n<\/td>\n<\/tr>\n

\n

Legal<\/strong><\/p>\n<\/td>\n

Contracts, litigation, IP, GDPR, corporate structure<\/td>\n\n

Eliminates the risk of post-closing contractual surprises.<\/p>\n<\/td>\n<\/tr>\n

\n

Employment<\/strong><\/p>\n<\/td>\n

Workforce, collective agreements, litigation, misclassified contractors<\/td>\n\n

Hidden employment contingencies are frequent in SMEs.<\/p>\n<\/td>\n<\/tr>\n

\n

Commercial<\/strong><\/p>\n<\/td>\n

Customers, market share, recurrence, competition<\/td>\n\n

Justifies the valuation multiple before the buyer.<\/p>\n<\/td>\n<\/tr>\n

ESG \/ Environmental<\/strong><\/td>\nEmissions, governance, social impact<\/td>\n\n

Required by PE funds; affects the buyer’s cost of financing.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

Process and phases of Vendor Due Diligence<\/h2>\n

A well-executed VDD follows a structured process that normally unfolds in four phases:<\/strong><\/p>\n

    \n
  1. Defining the scope and selecting the advisory team. <\/strong>The seller, together with its M&A adviser, determines which areas the VDD will cover. Top-tier independent advisers are selected for each discipline. Independence is essential for the report to be credible to buyers.<\/li>\n
  2. Information gathering and analysis. <\/strong>The advisers access the documentation through a Virtual Data Room (VDR). Historical financial statements (3\u20135 years), contracts, tax structures, workforce and commercial positioning are analysed. This phase typically lasts 6\u201310 weeks.<\/li>\n
  3. Identification of findings and corrective action plan. <\/strong>The advisers present their findings to the seller before drafting the final report. The seller has the opportunity to correct contingencies, reorganise tax structures, settle minor litigation or prepare the appropriate explanation for each finding.<\/li>\n
  4. Preparation and distribution of the final report. <\/strong>The VDD report is shared with potential buyers under NDA. In competitive processes, it drastically reduces each buyer’s due diligence time. The advisers remain available for Q&A sessions.<\/li>\n<\/ol>\n

    The advantages of Vendor Due Diligence for the seller<\/h2>\n

    The advantages of a VDD are not theoretical; they translate into price, timing and legal certainty. These are the main ones:<\/strong><\/p>\n