Vendor Due Diligence: Why the Seller Should Lead

In a traditional M&A process, the buyer commissions due diligence after signing a letter of intent. The seller waits, reacts, and often finds themselves defending issues that could have been identified and resolved months earlier. Vendor due diligence (VDD) reverses this dynamic — and the results speak for themselves.

A VDD is a comprehensive review of the target company commissioned by the seller, typically covering financial, tax, legal, and commercial dimensions. The resulting reports are shared with prospective buyers, who can then rely on them (subject to reliance letters from the advisors) to accelerate their own analysis and decision-making.

The strategic advantages are significant. First, VDD identifies potential red flags before buyers discover them. Tax contingencies, contractual weaknesses, working capital anomalies, and regulatory gaps can be addressed proactively — eliminating the 'surprise factor' that often leads to price reductions or deal collapse.

Second, VDD accelerates the transaction timeline. When buyers receive comprehensive, professionally prepared reports upfront, they can move faster through their own approval processes. In competitive auction situations, this speed advantage can be decisive — the buyer who can close fastest often wins.

Third, VDD builds buyer confidence and reduces price chips. When a seller presents a transparent, thoroughly analyzed business, it signals professionalism and integrity. Buyers are less likely to demand aggressive price adjustments when they can see that issues have already been identified, quantified, and — where possible — remediated.

The cost of a VDD exercise — typically €50,000 to €150,000 depending on company size and complexity — is almost always recovered through higher transaction values and lower post-LOI attrition. For mid-market transactions in Portugal, where deal values typically range from €10 million to €100 million, the return on investment is compelling.

Our recommendation: every seller planning a structured exit process should commission VDD at least 12 months before going to market. The exercise not only improves deal outcomes but also serves as a powerful diagnostic tool for the business itself.