Whether it’s in the legal department or capital raising, real estate, or corporate finance, there is a lot of work to do before signing a deal or liaising with a stakeholder. But how can a company ensure that its most sensitive data and documents are in order? The answer lies in resorting to vendor due diligence (VDD).
What is Vendor Due Diligence?
VDD is the term for sell-side due diligence, which is the opposite of buy-side due diligence. It is an independent review of a company before it’s put up for sale. This procedure has become more prevalent in recent years as sellers have started realising they can learn a lot about their assets or companies from the VDD.
The process makes sure the company values itself and its assets appropriately and recognises the red flags before a buyer sees them. In this way, VDD helps a company save resources and time for all concerned parties. The practical implementation of this process can also help companies increase their sales prices or assets.
The Right Time for a Company to Conduct VDD
It is crucial for a company to begin the VDD process at the right time. They should start when they know they want to sell something as a part of an M&A, Capital Raising, or Real Estate procedure. Identifying the red flags early aids in saving a considerable amount of time as the sellers get to remedy all issues before the sale commences.
Sellers can ensure that all crucial documents are logically indexed and structured. They can review the content of and redact the sensitive details from confidential documents.
Companies want the people conducting the process of VDD to remain involved in the entire sales process. The in-depth knowledge of the documents makes the people ready for complex questions from the bidders and buyers. So, such professionals remain involved in all presentations and pitches concerning interested purchasers.
Things a Company Should Look Out For While Conducting VDD
Vendor onboarding is a serious business that involves a lot of steps. Every company has bespoke data points and contracts that it needs to consider. A lot of the data points and contracts depend on the sector or industry a company is a part of.
However, this does not mean that there are no ground rules that each company, planning to go for VDD, needs to follow.
So, there are three tips that a company needs to remember:
- Its documentation gets indexed and categorised in a logical buyer-friendly manner and is all set for data room uploading.
- The company thoroughly reviews those documents to recognise probable red flags.
- The company securely redacts all details that can compromise compliance or regulations while sharing them with potential buyers.
Keeping these tips in mind, there are three things a company should think about while conducting VDD:
1. Company Information
While it sounds obvious, oversights are more common than one might think. A company wants to ensure that all the documents are updated and legitimate. Local regulations and laws tend to inhibit certain operations, and reviewing these steps helps before inviting in the bidders.
2. Risk Mitigation
Data breaches made by third parties are among the costliest cyber-attacks. So, a company needs to make sure that they have included their cyber risks within the VDD. What is the extent of vulnerability of the company? How has the business overcome these measures? How are the data breaches going to get mitigated, if needed?
Reviewing the reputation of a company is significant, too. The buy-side might ask questions regarding how the businesses address negative reviews or the presence of any litigation bidder.
Issues that might be raised with regards to the company’s operations are:
- Employee turnover
- Pending employee lawsuits that probable purchases need to know about
- Code of conduct
Though these seem counterproductive, it is the opposite of that. Not addressing such red flags timely and waiting for the buyers to do their due diligence puts a company on the back foot in negotiations.
3. Financial Documents
Understanding the major assets, the intellectual property, and the balance sheets are crucial to the buyer-side of the procedure. However, a company has to pay attention to the financial documents and not overlook this aspect.
While most of this guide focuses on a company’s involvement in steering vendor due diligence, you can also partner with third parties. Such third parties help a company conduct VDD effectively. Taking a look at the financial records before the deal ensures that the company’s and its buyers and sellers’ interests remain aligned. More importantly, liaising with third party providers helps save time and enhances the accuracy of the information.
If you are looking for a reliable and experienced third party to conduct the VDD, you can trust AuthBridge to get the job done. Get in touch with the experts and discuss the needs of your company today.