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  • Bartłomiej Dmitruk

Vendor Due Diligence (VDD) - prepare professionally to sell your company in VDR

What is VDD?

Vendor Due Diligence is a research carried out by the seller in key areas for the sold company - it usually covers such areas as: financial, legal, tax, HR, technological, environmental and addressing operational risks resulting from the specificity of the industry in which the sold company operates.

Rather, the VDD study focuses on the most important areas and risks and is not a complete due diligence study. VDD is carried out before the start of the sales process, and its result is a report for the seller, prepared by advisors, summarizing the identified risks and indicating the method of their possible elimination or reduction.

When is it worth doing a VDD?

Vendor Due Diligence is usually carried out for the purposes of larger M&A transactions or transactional situations in which the most likely buyer is direct competition (strategic buyer), which the seller does not want to disclose business secrets, which constitute a competitive advantage.

In situations involving direct competition, the VDD report is a well-understood buffer that gives the buyer comfort as to the completeness and reliability of the data and information disclosed in the VDD, and at the same time does not disclose sensitive data and information that should not be presented to the competition at the initial stage of the sale transaction (e.g. pricing policy, contracts with key contractors or remuneration of key people).

VDD can make your company's sales process more attractive when:

  • due diligence is required by potential buyers;

  • many potential buyers are involved in the auction process;

  • the company's sales schedule is tight and confidentiality is mandatory;

  • disclosure of the sales process could disrupt the operations of the company being sold;

  • the transaction is complex and the seller requires special control and security of information shared with potential buyers;

  • the seller requires precise and well-prepared initial bids;

  • the seller requires strict control over the company's selling process.

Get to know your company anew and prepare it for sale

VDD allows the seller to get to know their business through the eyes of an independent advisor and identify and address risk areas before starting the sales process. This is particularly important when the owner has withdrawn from the day-to-day management of the company and limits his activity to the supervision of the management board, e.g. from the supervisory board level.

An additional advantage of VDD is that it allows the seller to better prepare for the sales process of the company and address the identified risks, which will translate into a greater probability of transaction success and potentially a higher valuation and selling price of the company.

Responsibility of the seller and the VDD advisor and the so-called Reliance Letter

The advisor who prepares the VDD report can assume responsibility for its content, not only to the seller, but also to the buyer who will eventually complete the transaction. In such a case, if the report omits any important issue, despite the fact that it was included in the examined documents, the buyer may submit a claim to advisers (this is the so-called reliance principle). The VDD advisor can issue the seller a so-called Reliance letter. It is a contract whose main role is to limit the possible liability of the author of the VDD report which is then made available to third parties, in this case potential buyers.

Preparation of VDD in Virtual Data Room

As part of VDD, documents for the virtual data room are prepared and completed, which are subject to the advisor's assessment. On the basis of the assessment of these documents, a VDD report is prepared, intended for potential buyers, which describes the subject of the transaction and possible risks. Along with the VDD report, a VDR index may be prepared showing what documents are prepared for potential buyers in the Virtual Data Room.

The VDD process makes the seller better prepared to sell the company and the due diligence process that buyers will want to carry out as part of the verification. The seller also gains greater control over the documents made available - the documents are previously prepared in the Virtual Data Room and assessed by the advisor under VDD. The seller may also limit access to documents which, in the opinion of the VDD consultant, are trade secrets constituting a competitive advantage in the industry.

If a seller chooses to prepare and make a VDD report available to buyers, such a report, along with a well-prepared VDR index, provide a roadmap that allows buyers to assess which areas of the final due diligence require special scrutiny. This, in turn, allows you to limit the time that buyers spend on their research and to make the final decision to buy the company.

Virtual Data Room - best market practice in the Vendor Due Diligence process

Professional VDR software is one of the best market practices of any VDD process. Ensuring adequate security of data and documents, 24/7 access from anywhere in the world, organizing due diligence documentation with an index of VDR documents and granting authorizations to documents for individual buyers under the full control of the seller, the company and his advisers, are just some of the advantages of running the VDD process in Virtual Data Room. This translates into professionalism, flexibility and speed of vendor due diligence as well as the effectiveness of the entire sales process of the company.

About us

DealDone is a specialized company that offers high-quality products in the field of information and data security. The DealDone team consists of people with many years of international experience in investment banking, investor relations, technology and cybersecurity. We offer services and software in the field of modern technologies for the circulation of confidential information, classified information, sensitive data and digitization, security, encryption and sharing of data and documents inside and outside the organization.

DealDone independently developed and introduced for sale the Virtual Data Room SECUDO solution. VDR SECUDO is a platform for secure exchange and processing of confidential information offered in the Software-as-a-Service model for business clients, in the form of virtual data rooms.

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