Vendor Due Diligence

Vendor due diligence is a review of the seller's own company commissioned by the seller. The seller makes the results available to potential buyers. This creates trust, accelerates the process, and helps the seller retain control over the information situation.

The report is prepared by an independent firm, typically covering financial, tax, legal and commercial topics, and is written from the outset so that bidders can rely on it. A reliance letter is decisive here, by which the preparer permits the selected buyer and its banks to use the report. The benefit to the seller has three parts. First, the burden on its own finance function falls considerably, because the same questions are not asked afresh by every bidder. Second, all bidders receive the same basis, which sharpens competition and makes renegotiation harder.

Third, weaknesses become visible early and can be remedied before the process starts, rather than surfacing as a price argument in the buyer's diligence. Buyers as a rule do not rely on the report alone but supplement it with their own, considerably leaner review of selected topics. Economically the effort pays off above all in auctions with several serious bidders and in the upper mid-market.

The seller bears the cost initially, frequently in the mid five-figure to low six-figure range for mid-market transactions. It is regularly recovered through a faster process and a stronger negotiating position.