A vendor due diligence report is a report compiled by a seller for the purposes of a potential sale, which is prepared on the basis that it can be relied on by the ultimate purchaser of the business.
It is increasingly common practice for sellers to consider providing a vendor due diligence report as part of their sale process for the following reasons:
- rather than have a potential purchaser shape and influence the direction of the due diligence process, the seller takes charge of the information provided to a purchaser
- it reduces time and cost associated with providing multiple parties access to due diligence information
- it reduces disruption to the target business
- it facilitates a competitive bid process where there is more than one potential purchaser
- it creates a level playing field among potential purchasers when formulating their bids and hence can easily compare the value of bids, and
- it enables the parties to discuss and resolve any potential deal breakers before bids are due.
The cost of the report is usually contributed to by both the seller and the ultimate purchaser of the target business at a pre-determined cost. They typically contain assumptions, limitation as to scope of reporting (ie factual information and not advice), disclaimers and limits on liability. Purchasers ultimately remain responsible for assessing risks and determining the value of the business. Despite the limitations of such reports, they do have the benefit of saving a great deal of time and cost for both parties in a due diligence process which can very easily spin out of control with multiple parties involved.
If you are interested in discussing any aspect of vendor due diligence, or any other aspect of a sale or acquisition, contact us on 02 8006 0830 or [email protected] for a confidential discussion.
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