Vendor due diligence (VDD) is due diligence commissioned by the seller of a business, rather than the buyer, producing an independent report on the business's financial, legal, commercial and operational position ahead of a sale process.
How vendor due diligence works
The seller engages accountants or lawyers to review the business before it goes to market, producing a VDD report that can be shared with prospective buyers, often under reliance letters that let a buyer place formal reliance on the findings. This speeds up the buyer's own due diligence exercise, helps the seller identify and fix issues before they surface later in the process, and supports a competitive sale by giving multiple bidders access to the same information at the same time, often organised through a shared data room.
How UK businesses use vendor due diligence
- A business preparing for sale commissions vendor due diligence so financial, legal and commercial issues are identified and addressed before the business goes to market.
- A seller running a competitive auction process shares a vendor due diligence report with several prospective buyers simultaneously, speeding up the process and reducing duplicated advisor costs.
- An accountancy firm advising a client selling their business uses the VDD process to present a clean, well-organised set of financial information, supporting a stronger valuation.
- A buyer relies on a vendor due diligence report, supported by a reliance letter from the report's authors, reducing the scope and cost of its own separate due diligence exercise.
How Advantage supports vendor due diligence
Advantage's EdgeFusion accelerator helps accountancy and advisory firms manage the financial data, document requests and reporting that a vendor due diligence exercise depends on, keeping the process organised across multiple prospective buyers.
Frequently Asked Questions
How is vendor due diligence different from buyer-led due diligence?
Vendor due diligence is commissioned and paid for by the seller before a sale, producing a report that can be shared with multiple prospective buyers, whereas buyer-led due diligence is commissioned separately by each buyer investigating the target.
Can a buyer rely on a vendor due diligence report instead of doing its own?
Often partially. Buyers may rely on a vendor due diligence report supported by a reliance letter from its authors, though many still carry out some independent due diligence on specific areas of concern before completing a deal.
Why would a seller pay for vendor due diligence?
Vendor due diligence helps a seller identify and fix issues before marketing the business, supports a stronger valuation by presenting well-organised information, and speeds up a competitive sale process by giving multiple bidders access to the same information at the same time.
