Properly conducted it allows for minimising the risk of transaction failure and leads to the vendor achieving best possible terms of sale.
When an enterprise sale transaction is being negotiated, two parties meet together, each of them striving to achieve and gain as much as possible. Purchasing a business is always a high-risk process with a great number of elements to be considered, taken into account and then negotiated upon. The buyer has to assess whether it is profitable to take over a given company, evaluate its quality and the risks such a decision bears for the development of asset value. This is the purpose of conducting a due diligence audit of the soon-to-be-purchased enterprise, which usually covers aspects of finance, taxes, legal, HR, technology, environment and operation risks.
However, it is not only the buyer that should be interested in learning as much as possible about the state of his future business. The vendor, too, should not remain passive in order to achieve best possible terms of future transaction. Vendor due diligence is a helpful tool in identifying problems the vendor might encounter in the whole process. As a rule, it should cover the same areas as standard due diligence and help to answer most questions that usually arise after the company has been reviewed by a potential buyer.
Properly conducted it allows for minimising the risk of transaction failure and leads to the vendor achieving best possible terms of sale. Additionally, it secures the vendor against unwanted disclosure of sensitive data, since a vendor due diligence report answers most questions and matters of interest to potential buyers but in such a way as to protect all sensitive data and contacts. Thanks to vendor due diligence the vendor may avoid situations, where during negotiations the opposite party presents facts on risks the vendor was not aware of but which do have an impact on final price of the entity. This way the vendor wins time and has the opportunity to prepare a relevant negotiation standpoint to counter any arguments the buyer might present on any stage of transaction process.
Performing vendor due diligence brings three very important benefits to the company vendor:
Provides information on risks that might and most probably are going to be indicated by potential buyers, thus enables the vendor to improve the situation, eliminate the issues or prepare relevant arguments for the negotiation stage;
Delivers a message to potential buyers that the vendor is a reliable transaction party and thanks to the vendor's involvement in arranging a professional company to perform vendor due diligence, transaction safety increases substantially from the buyer's point of view;
For potential buyers, the end result is a report providing every party with the same, detailed and reliable information on the business being the subject of the transaction. This allows to secure sensitive information on the company intended for sale and significantly reduce the time and costs of buy side due diligence both for potential buyers and the seller.
Vendor due diligence guarantees to quicken the process of selling your business
Vendor due diligence performed by an external entity allows for an objective review of the business to be sold and highlights both its strengths and weaknesses. Often as a result certain factors that were underestimated by the vendor, but in fact are key factors in the transaction process, are brought to his attention and can be acted upon accordingly.