Vendor Due Diligence (VDD)

The shareholders of a company wish to sell the business and engage an investment banker (M&A firm) for this purpose. The banker is tasked with setting up a competitive process among potential buyers.

To facilitate this process and prepare for the sale, a reputable firm conducts an accounting and financial audit in advance. This firm performs the standard due diligence that a buyer would typically undertake.

The approach is similar to buy-side Due Diligence. The due diligence typically includes:

• Understanding and describing the business model
• Evaluating the quality of financial information
• Reviewing historical performance
• Assessing the quality of earnings or determining the normative EBITDA (or EBIT)
• Financial analysis: investments (CAPEX), working capital requirements (WCR), financial debt, and conversion of EBITDA into cash flow
• Presenting and verifying the business plan.

The analysis establishes the key metrics for the asset being sold. It determines the transaction’s critical assumptions in advance (normative EBITDA, adjusted net financial debt, generated cash flows). It also identifies risks upfront to anticipate challenges with potential investors.

The disposal process is made more credible and optimized by the work of a reputable external firm recognized for the quality of its analyses.

Our work is summarized in a report detailing the analyses performed and our conclusions. The draft report is intended for the client and potential buyers. At the end of the process, our final report is typically included in the transaction documentation, engaging our responsibility towards the parties, including the transaction’s financiers.