Vendor Due Diligence –
A Service To Buyer And Seller
Vendor due diligence is an in depth financial report on the financial health of a company that is selling of part or all of its company. Many large consultancies provide vendor due diligence to provide financial information and some level of assurance, to both the potential purchasers and the seller.
The seller has some confidence that they are selling at an appropriate price level. The prospective purchaser obtains some declaration as the financial health or potential financial problems of the target company. Vendor due diligence seeks to cover the issues and questions that may be relevant within a potential buy out or merger and acquisition.
This service may also assist the selling company with the successful break up or sale of part or all of the company. It is particularly used when there are a large number of potential buyers or an auction may be appropriate.
Many buyers do not rely totally upon vendor due diligence but use it as their own due diligence. Obviously, the credentials of the company providing this service are taken into account.
There are a number of advantages for a company that undertakes vendor due diligence:
- It provides the selling company with information about any sale threatening problems and gives them the time to address these problems.
- It identifies any problems that may result in negotiating issues and allows these to be negated wherever possible.
- It may identify hidden areas of value.
- It may identify other ways of carving up the business that may be more advantageous.
- It could identify methods of disposing of the company that are more tax advantageous.
- It provides the selling company with some degree of control over what financial matters are disclosed in the early stages of the sale of auction. Commercially sensitive information is disclosed in a controlled manner and may not be disclosed to potential rivals.
- It speeds the initial sales processes.
- It provides the potential buyers with key information.
- It aids potential buyers with their own validation process and negates a considerable part of it at no cost to themselves.
- Multiple potential buyers obtain the same information, putting them all on an even level.
- Bidding is faster as potential buyers have access to more information.
- It negates multiple buyers asking the same questions.
- Potential buyers get early warnings of potential problems and are saved the cost of bidding is these are deal breakers.
- Potential buyers receive an unbiased financial review of the company for sale.
As you can see there are a considerable number of benefits to undertaking a vendor due diligence within a sale of a company. The only possible downside is that the potential buyers will not have enough faith in the resulting report, but this is soon negated by the use of one of the many large consultancies that seem to be vying to be chosen to perform this service.
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