Everything you need to know about Vendor Due Diligence (VDD): what it is, when it's used, advantages for the seller and differences from buy-side FDD.
Vendor Due Diligence is one of the less intuitive concepts in Transaction Services — until you understand the logic behind it. Here's a complete practical guide.
Vendor Due Diligence (VDD) is a Financial Due Diligence commissioned and paid for by the seller rather than the buyer. The resulting report is then made available to prospective buyers in the data room, typically alongside the Information Memorandum.
The key distinction: in a standard buy-side FDD, the advisory firm is instructed by and reports to the buyer. In a VDD, the firm is instructed by the seller — but the report is designed to be relied upon by buyers.
VDD is most common in:
Competitive sale processes (auctions): when a seller runs a structured process with multiple bidders, providing a VDD to all bidders means each doesn't need to commission a full FDD independently. This reduces data room friction and accelerates the process.
Private equity exits: PE firms are sophisticated sellers who understand the value of controlling the narrative. A well-prepared VDD presents the EBITDA adjustments in the most favourable (but defensible) light before buyers arrive with their own teams.
Complex businesses: in businesses with intricate accounting or multiple segments, a VDD helps buyers understand the financials without extended Q&A processes.
Speed: a VDD available at the start of the process means buyers can move to binding bids faster.
Narrative control: the seller shapes the EBITDA bridge before buyers do. Legitimate add-backs are presented clearly; sensitive issues can be addressed proactively.
Attracting more bidders: buyers with limited due diligence resources (family offices, corporates) can participate more easily with a VDD in hand.
Reduced management disruption: a single VDD process is less disruptive to management than five separate buy-side FDD processes running in parallel.
Despite its advantages, buyers remain cautious about relying solely on a VDD:
For significant acquisitions, sophisticated buyers typically commission a confirmatory FDD — a targeted buy-side exercise that verifies the key conclusions of the VDD and investigates any open questions.
Working on a VDD is a materially different experience from buy-side FDD. You're writing the report knowing it will be read by multiple parties with different agendas. The standard for clarity and defensibility is higher.
In interview, if asked about VDD, cover: (1) who commissions it, (2) why it's used in auctions, (3) its limitations for buyers, and (4) how confirmatory FDD complements it.
The programme covers both sell-side and buy-side perspectives across its case studies.
Hundreds of candidates prepared their interviews with this programme. Those who landed the role have one thing in common: they worked the cases before walking into the room.
