A due diligence process commissioned and paid for by the seller before launching the sale process, whose findings are made available to potential buyers to accelerate the transaction and reduce information asymmetry.
In a traditional acquisition, the buyer commissions due diligence and discovers problems after months of work. Vendor due diligence reverses the sequence: the seller commissions their own audit before launching the sale, anticipates the questions buyers will ask, and enters the process with the answers already prepared.
Vendor due diligence (VDD) is a comprehensive review process commissioned by the seller — typically from an independent audit or consulting firm — before launching the sale process. The findings are compiled in a VDD report made available to potential buyers in the data room.
The report covers the same areas as conventional due diligence (financial, tax, legal, employment, commercial, operational), but with a fundamental difference: the client of the report is the seller, not the buyer. The auditor works for the seller but issues the report so that buyers can rely on it.
VDD allows the seller to discover contingencies (tax, employment, contractual) before the buyer does. This provides time to resolve problems or at least prepare a solid explanation.
In a competitive process with multiple buyers, each would need to conduct their own full due diligence, multiplying time and disruption for the company. With VDD, all buyers access the same independent report and only need to perform confirmatory due diligence.
A seller who knows their weaknesses before the sale can contextualise problems: explain why a tax contingency is not a real risk, why customer concentration is lower than it appears, or why a pending lawsuit has a low probability of success.
A more transparent process generates more confidence, attracts more buyers, and produces better offers. VDD reduces perceived risk and, consequently, the buyer’s pressure to lower the price.
A typical VDD report includes:
A critical point of VDD is the question of reliance (the buyers’ right to rely on the report). The report is issued for the seller but includes a “reliance letter” that permits buyers to rely on its conclusions. If the report contains material errors, the buyer can claim against the auditor who issued it.
An entrepreneur in northern Spain wants to sell their industrial components company (revenue: EUR 28M, EBITDA: EUR 4.2M). Before going to market, they commission VDD from a Big Four firm:
VDD cost: 120,000 euros (financial + tax + employment)
Key findings:
Result: The VDD costs 120,000 euros but enables the seller to fix issues that would have reduced the price by 1-2 million. The sale process is also completed in 5 months instead of the usual 8-10.
In the Spanish mid-market, a financial and tax VDD typically costs 60,000-150,000 euros. If it includes legal, employment, and commercial components, it can reach 200,000-300,000 euros. The cost should be evaluated against the impact on price and transaction speed.
Not entirely. The buyer usually conducts confirmatory due diligence to verify findings and dig deeper into specific areas. But VDD significantly reduces the scope, cost, and duration of the buyer’s DD.
When seeking a competitive process with multiple buyers, when the company has financial or tax complexity, or when the seller wants to identify and resolve issues before going to market. For smaller companies or simple bilateral sales, the cost may not be justified.
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