Vendor Due diligence

A vendor Due Diligence is a different terminology for sell side Due Diligence. It is similar like a buy side Due Diligence but originated by the seller. Hence, it is often also called a 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, since many years now sellers have learned it can be useful do a due diligence as well on the own company. By doing a VDD the seller learns a lot about it’s own company. Vendor Due Diligence can be described as the investigation and analysis to have the own company assessed. A strong focus is on the financial business drivers that determine the future results. The reason is that the investigation can help with getting an increased price for the company. In practice often the people that do the Vendor Due Diligence also defend and explain the Due Diligence performed to the buyers.

A vendor Due Diligence is important and can be very useful. As a business owner you can benefit a lot by having a vendor DD done. A vendor due diligence project can provide valuable information to a seller. This can sometimes be the difference between a succeeded or failed business sale. At the minimum it can help in support to the proposed acquisition and possibly at a better price.

Especially when there are various interested buyers, having a consistent report and documentation can reduce the required for a sales process. Hence, a sell side (vendor) due diligence can help in decreasing the answering time and get away obvious questions. Vendor (sell-side) due diligence will increase the quality of the offers received and maximize the value of a business sale. Hence, a vendor due diligence will normally far offset the costs involved

This document provides an example on how to develop a vendor due diligence report.

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Key Points

Key Questions Answered

    How solid is the financial platform?
  • How strong is the financial development across time, geographies and product and customer segments?
  • How has the company realized strong profit growth with only limited sales growth in the past years?
  • To what extent is the company able to make profits from all customers/order types?
  • How (in)dependent is he company of individual customers, suppliers and products?
  • What are the customer and/or supplier conflict potential in new product categories a? What are the key strengths of the commercial position?
  • In which market niches (regions, products, customers) is the company leading?
  • What is the strength of the value proposition and what are the pivotal differentiators?
  • Who are the competitors in each market segment and what threat do they pose to the company? How unique is the business model and how easy can it be acquired by competitors? How will market dynamics affect the business going forward?
  • What market development scenarios are most likely in the coming years?
  • Is the current business model sustainable, given the expected development?