Vendor Due Diligence (VDD) vs. Vendor Assistance (VA): What are the differences and advantages?

In the world of mergers and acquisitions (M&A) the sales process of a company can be quite complicated. Being well prepared is thus critical. As corporate finance professionals, we assist the vendors with 2 important services, being Vendor Due Diligence (VDD) and Vendor Assistance (VA). 

These services are often confused with each other. Yet each has its own purpose and offers unique benefits depending on the needs of the vendor. In this article, we will discuss the differences between VDD and VA, the benefits of both and how they help you make a transaction process run smoothly. 

Vendor Due Diligence (VDD) is a comprehensive and independent analysis of a company's financial and tax situation. The investigation is conducted on behalf of the vendor, but with the expectations of potential buyers in mind. The aim is to provide an objective, reliable report that investors can use in their decisions. 

The key features and benefits of VDD are: 

• Independent investigation that accelerates the transaction process: VDD is conducted by an external party. This results in an objective and neutral assessment, which increases buyers' confidence and partially relieves them of having to do their own full due diligence. 
• In-depth analysis for greater certainty: VDD includes an in-depth review of financial statements, profit and loss accounts, working capital, tax compliance and potential risks. These in-depth insights reduce buyer doubts and increase the likelihood of a successful deal. 
• Buyer-centric approach and strong negotiating position: the report focuses on issues that investors care about, such as revenue stability, margins, tax liabilities and financial consistency. This well-researched report helps vendors defend their price and business value. It also prevents buyers from asking numerous additional questions, allowing management to remain focused on day-to-day operations. 
• Lower transaction risks: by identifying and resolving potential issues in advance, you reduce the likelihood of failed deals, price renegotiations or extended transaction timelines.

VDD: in practice 

A medium-sized manufacturing company was preparing for a sale to a private equity firm. As the corporate structure was complex and several international tax jurisdictions applied, a VDD report was prepared to provide a thorough financial and tax overview.

This thorough approach accelerated the transaction by about two months. Without VDD, the buyer would have had to undertake a lengthy and extensive due diligence process, which might have led to delays or renegotiation of the price.

Vendor Assistance (VA) helps vendors sort out financial and operational issues before starting a company's sales process. As opposed to VDD - which produces an official report - VA focuses on internal preparation and process optimisation. 

The key features and benefits of VA are: 

• Pre-sale preparation & risk mitigation: VA helps vendors identify and resolve financial bottlenecks before buyers discover them. Potential red flags are thus addressed in advance, reducing the likelihood of price reductions or a delayed deal. 
• Flexible support: services are tailored to vendors' specific needs, such as preparing management reports or improving financial data. 
• Internal analysis: VA focuses on optimising the company's financial housekeeping and streamlining working capital management. 
• Greater clarity in financial reporting & efficient data room preparation: well-documented KPIs and adjusted EBITDA calculations make the company more attractive to investors. VA helps prepare a well-organised virtual data room so that buyers have immediate access to the right documents. 

VA: in practice

A family-owned retail business was “put up for sale” but had limited experience with financial reporting. Through VA, we worked closely with their finance team to normalise EBITDA by adjusting one-off costs and inconsistencies in revenue recognition. We also helped them refine their working capital strategy by aligning it with industry standards.

As a result, the company presented a much stronger financial profile when it entered the market, generating several competitive bids and a higher valuation than originally expected.

Both services add to a successful sale but have different applications. The choice between VDD and VA depends on the vendor situation and the complexity of the transaction.

Summary: 

Understanding the difference between VDD and VA is crucial for any vendor looking to optimise their M&A transaction. While VDD provides independent, buyer-focused analysis that streamlines the due diligence process, VA ensures internal readiness and risk management before entering the market. By choosing the right approach - or a combination of both - as a vendor, you can maximise deal certainty, reduce transaction risk and achieve a more favourable outcome. 

As experienced corporate finance professionals, we help companies safely navigate the complexities of the sales process. Whether you need a structured due diligence report or practical help preparing for a sale, our expertise will ensure you are in pole position for success! 

Are you considering a business acquisition, and want to discuss the best approach for your specific situation? Please feel free to contact our team.