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Part one of a two-part blog on what vendor due diligence means for both buyer and seller.
Vendor due diligence. Vendor assistance. Sell-side due diligence. Defensive due diligence.
Transaction due diligence, or the concept of a buyer investigating a potential acquisition to make sure it’s in the condition represented by the seller, is a given in most businesses. But having the vendor conduct a due diligence process is less common – in Canada, at least.
The idea of sellers engaging in a due diligence process of the business to be divested has been around for a number of years in Europe and is now also more commonplace in the U.S. Which is making Canadian sellers and buyers stand up and take notice.
As transaction advisors, we often are asked questions such about what vendor due diligence is and how seriously will a buyer take a vendor due diligence report?
Also important to know is how can due diligence, as part of a divestment, help the buyer and the seller? What are the primary benefits to both buyers and sellers? And when can it be an appropriate tool for small- and mid-sized transactions?
Vendor due diligence, sell-side due diligence and defensive due diligence are used interchangeably. They are similar to a buy-side due diligence but originated by the seller, focused on the business to be sold and carried out before the seller goes deep into discussions with potential buyers.
Vendor due diligence provides an independent assessment of the historical performance and prospects of the business being sold. This includes a detailed report on the business which can be used by sellers to quickly address issues identified and make their business more attractive to buyers. It can be provided to potential buyers to significantly reduce their own due diligence requirements.
Vendor due diligence is typically provided to prospective buyers on a non-reliance basis, although with a duty of care being provided to the purchaser. It is designed to present a balanced analysis of the business; anticipating questions or issues buyers may raise and alleviating such concerns where appropriate. This is completed with an end-goal of enabling a faster and smoother process to move towards a successful transaction.
Vendor assistance is a broad term to describe helping sellers prepare their business’ financial information for sale. This is typically tailor-made to the situation and designed to help the seller compile the business’ financial and operational information and key metrics in an easily digested way for potential buyers. It is typically less time consuming than a full-scale vendor due diligence exercise and it is not accompanied by a due diligence report.
Vendor due diligence has benefits to both buyers and sellers, such as:
Benefits to sellers (shareholders and management)
Benefits to buyers
Part two of this two-part blog addresses how some transactions benefit from vendor due diligence more than others.
Contact Johnny Earl, Managing Director, Corporate Finance, at 604.685.8408 or [email protected]
Related Topics:Due Diligence
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