Vendor due diligence: Optimise shareholder value by managing deal vulnerabilities

With COVID-19 impacting businesses across sectors, deal activity is expected to increase as businesses look to raise funds (equity/debt) and/or plan to exit/demerge/restructure. The deal process has changed considerably in recent times with higher competition for quality assets, including international bidders, and increased use of electronic data rooms. This has necessitated vendors to plan and exercise more control on the process and manage vulnerabilities better. Hence, vendor due diligence (VDD) has become an increasingly common feature in deal processes.

Here’s how you can PLAN a VDD by understanding the requirement, deliverable and process involved in this exercise:

• Background: VDD is a seller-initiated process by businesses looking to raise funds (equity/debt) and/or plan to exit/demerge/restructure a business to proactively equip themselves with important information and issues surrounding their business and thereby have control over deal process.

• Importance: Helps in an in-depth analysis of the financial health of a business, which feeds into business plan and the valuation model. Through VDD, a vendor can identify and disclose the issues in a balanced way, supported by the financial analysis and also links into the overall deal positioning.

• Benefits: Identifies diligence issues early, which enables vendor to manage and mitigate business risk, shortens the deal process, maintains confidentiality and improves negotiating power.

And more…