Vendor due diligence
M&A / Merger ModelDiligence commissioned by the seller on its own business, delivered as a report bidders are permitted to rely on.
Also written: VDD
In a vendor due diligence process the seller pays for financial, commercial, tax and legal diligence on itself, then gives the resulting reports to bidders with reliance rights, so buyers can use them as if they had commissioned them.
The seller does this to control the process. One thorough report given to everyone replaces each bidder running its own workstream, which keeps the timetable tight and preserves the competitive tension that a long, staggered process destroys.
It also lets the seller find its own problems first. Discovering an issue in advance means preparing an answer, rather than facing a price chip late in the process when leverage has already shifted to the remaining bidder.
It is far more common in European auctions than in the US, and is closely associated with sponsor led sales where speed and deal certainty are worth paying for.
Worked example
A sponsor selling a business commissions financial, commercial and tax VDD at a cost of about 2 to 3.
Six bidders each avoid running their own full workstream, so the second round runs four weeks rather than ten and no bidder drops out through fatigue.
It also surfaced a revenue recognition issue early, letting the seller prepare an answer rather than face a price chip at the exclusivity stage.