Vendor Due Diligence and Vendor Assist

Vendor Due Diligence (VDD) and Vendor Assist (VA) are two separate engagement types where advisors can be brought into a company on behalf of the shareholders (the vendors) to aid a sale through a mergers & acquisitions (M&A) transaction process. Our team offers both services, but it’s essential to understand which service will provide the best value for your company.

VDD involves hiring an independent third party, typically a financial advisory firm, to assess the company’s financial, operational and tax situation. The outcome of the engagement is an unbiased report that should give buyers confidence in the entity they are looking to acquire.

VA refers to support provided by an advisory firm to the vendors to prepare for a sale. It will look like at the same areas as VDD, however, advice will be provided to the company on how to resolve issues and become sale-ready, rather than be disclosed in a report for buyers to use.

The benefits of VDD and VA

VDD and VA provide very similar benefits for shareholders looking to sell a company. Both processes offer the following

• Enhanced preparation for a sale and therefore a better streamlined sale process
• Improved vendor negotiating power; advisors will be able to pinpoint where the value lies in your business and how this could be extracted and developed
• Identification of regulatory and compliance issues in advance of buyers being approached, preventing bottlenecks in the sale process before they occur
• Mitigation of risks of deal failure as issues are uncovered in advance of a deal process
• Reduced disruption to the business; any buyer-led financial due diligence should be less time consuming, allowing you to focus on running your business

VA has its own advantages that VDD does not:

• Your advisor’s goal is to assist you proactively rather than simply producing a report. Any identified issues will not be included in a formal report, allowing you the opportunity to resolve them before potential buyers become aware
• A higher valuation can be achieved by proactively addressing issues, streamlining financials, and enhancing operational transparency, allowing the vendor to command a better price from buyers
• Your advisor’s role does not have to end once you go to market with your business; you can receive advice throughout the sale process

On the other hand, VDD has unique benefits:

• VDD provides credibility and transparency to your organisation through the independence of the advisors
• All buyers can be provided with the VDD report; this will minimise information gaps and reduce chances of suboptimal offers through the buyer failing to see the value-drivers of the company
• The VDD report will reduce the chances of buy-side reductions to the price based on their own findings

How do our clients choose between VDD and VA?

We never have two identical clients, however, from our experience, we have found that the choice between VDD and VA will always come down to the situation and objectives of the vendor.

VDD clients are often:

• Established private equity backed businesses, where the shareholders are confident of performance and internal controls are looking for a quick exit
• Companies going to an auction process, to enable an efficient diligence process that will provide all potential buyers with the same information
• Seeking international buyers; foreign acquirers may insist on local providers of financial due diligence to ensure any country-specific risks are understood
• Seeking accelerated sales due to cash shortages or distress

We frequently find that VA suits companies who:

• Have not gone through a formal M&A process before and would benefit from guidance in the early stages
• May have internal issues to sort before a formal acquisition process begins
• Have a small pool of buyers that are likely to make acquisition offers
• Would like to understand how to recognise/reposition a business to achieve maximum value from a sale process
• Might look to extend their relationship with their advisor to cover further part of the M&A process

When would we suggest chatting to us?

Preparation for VDD is essential. Prior to commencement, we would suggest the business undertakes the following steps and then gets in contact:

• Organise your financial information; ensure accounting policies are consistent across recent years and that you understand your recent financial history
• Prepare financial forecasts for the business, demonstrating what your business can achieve
• Conduct internal reviews of your business to discover your weak areas and mitigate prior to the report. This could include reviews of operational risks, intellectual property strength or potential legal issues
• Prepare your management team for questions; developing your key messaging is essential
• Know your own red flags; a diligence report should find any glaring issues within your business – expect these to come up and have your response ready

A VA engagement requires less preparation – it’s the advisor’s role to help you prepare for the sale. Each of the above areas would be reviewed as part of a VA engagement, but instead of being identified within a report, we would help you to mitigate your risks and improve your processes.

Gregor Miller

Corporate Finance Manager

Having specialised in Mergers & Acquisitions Advisory early in my career, I have developed deep cross-sector knowledge within the Scottish SME Market, but my interests are peaked within whisky, consumer and software sectors. In my current role, I work across M&A advisory, capital raising, financial due diligence, valuations and financial modelling.

I completed Chartered Accountancy training within a Big 4 accountancy practice and latterly worked for a boutique Corporate Finance Advisory firm.

Get in touch

Both VDD and VA can offer significant value within a transaction. If you’re curious about either engagement type, our Corporate Finance team would be happy to arrange a chat.