Company Sale: FDD from the Seller's Perspective
What does Financial Due Diligence look like when you are selling a company? How sellers and their advisers use FDD to control the process and protect value.
Financial Due Diligence is often discussed from the buyer's perspective — but sellers and their advisers use FDD equally strategically. Understanding the sell-side FDD dynamic is important for any TS analyst who will work on vendor due diligence mandates.
Why Sellers Commission FDD
Sellers initiate their own financial diligence for several reasons:
- Process control: A seller-commissioned FDD (VDD) shapes the narrative and manages the information flow to buyers.
- Speed: Buyers with access to a complete VDD can move faster to binding offers, maintaining competitive tension.
- Price protection: A well-prepared VDD reduces the scope for buyers to chip the price on financial grounds post-exclusivity.
- Management time savings: Without a VDD, each buyer sends their own FDD team who ask similar questions repeatedly — consuming management time and disrupting operations.
The Seller's Financial Preparation
Before going to market, sellers typically:
- Clean up the accounts: Ensure management accounts are accurate, regularly produced and reconcilable to statutory accounts.
- Prepare a datapack: A structured set of financial schedules covering P&L, NWC, headcount and customer revenue — ready for buyer FDD teams.
- Develop an adjusted EBITDA story: Identify and document every supportable EBITDA adjustment, with evidence for each.
- Address known issues proactively: Disclose and explain issues rather than hoping they won't be found.
Managing the FDD Process During a Sale
During the sale process, the seller's financial adviser (investment bank) and the VDD provider work together to:
- Answer buyer FDD questions in an organised, controlled way
- Prevent buyers from getting direct access to raw, unstructured data
- Manage the scope of buyer FDD requests (buyers often request more than they need)
- Defend the VDD conclusions against buyer challenges
Key Areas of Sell-Side Focus
EBITDA Adjustments
Sellers want to maximise adjusted EBITDA. A good sell-side FDD adviser identifies all legitimate add-backs, documents them thoroughly, and presents them in a way that is difficult for buy-side teams to reject.
NWC Target
Sellers prefer a lower NWC target (they need to deliver less NWC at closing, increasing cash proceeds). The sell-side FDD team will argue for the lowest defensible target.
Net Debt
Sellers prefer a narrower definition of net debt (fewer items included = higher equity value). Debt-like items will be contested.
Red Flags That Sellers Must Address
- Related-party transactions at non-arm's-length prices
- One-off revenue that appears in the last year before sale
- Accounting policy changes that flatter the numbers
- Management accounts that do not reconcile to statutory accounts
Sophisticated buyers' FDD teams will find these. Disclosing them in the VDD with a clear explanation is always better than having them discovered.
Conclusion
The sell-side FDD perspective is a distinct and important skill set for TS professionals. Analysts who can think from both buyer and seller angles are more versatile and more valuable to deal teams.
The Transaction Services Interview Programme (€119.99, one-time) covers both buy-side and sell-side FDD dynamics with dedicated case studies and scenarios. Enrol today.