Deal Process
Seller-side
Important
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Pre-LOI
Completed
Vendor Due Diligence (VDD): Getting Ahead of Your Own Bad News
Understand what a Vendor Due Diligence report covers, why sellers commission their own independent review before going to market, and when the cost is worth it.
The 30-Second Definition
Vendor Due Diligence (VDD) is an independent report commissioned by the seller, before going to market, that reviews the business's financial, commercial, and legal position with the same rigour a buyer's own due diligence team would apply. The goal is to surface issues on the seller's terms, not the buyer's.
Why Sellers Commission Their Own Diligence
Three reasons recur.
First, control of the narrative — the seller's advisers frame and explain any weaknesses before a buyer's team finds and frames them instead.
Second, speed — sophisticated buyers can rely on a credible VDD report rather than running fully duplicate diligence from scratch, which shortens the time to exclusivity and completion.
Third, and most valuable, pre-empting price chipping — issues identified and addressed in advance can't be used by a buyer as last-minute renegotiation leverage once exclusivity has already been granted.
What's Typically in Scope
A Quality of Earnings review (the adjusted EBITDA bridge and the normalisation adjustments behind it), working capital analysis, customer concentration risk, and a review of material contract terms — the same areas a buyer's diligence team would focus on first.
Weighing the Cost
VDD isn't cheap — a meaningful five-figure to low six-figure fee is typical for a mid-market transaction.
For businesses with genuine complexity behind the numbers — multiple revenue streams, a recent acquisition history, or related-party transactions — it routinely pays for itself by preventing the kind of late-stage price reduction that can run into hundreds of thousands of pounds once a buyer has already secured exclusivity.
What It Doesn't Replace
A VDD report doesn't remove a sophisticated buyer's need for their own legal due diligence — that will still happen regardless. What it does is materially shorten the financial and commercial diligence process, and remove the element of surprise.
GRAX Connection
VDD sits squarely in Exit preparation. The businesses that command premium valuations are consistently the ones whose owners know their own numbers and risks before a buyer ever has the chance to find them first.
This entry is for general information only and does not constitute legal, financial, or tax advice. Founders should take specific professional advice before acting on any of the points covered here.
