Vendor due diligence

Vendor due diligence (VDD) is diligence prepared by the seller — or commissioned to an external advisor — before launching the sale process. It consists of a financial, tax, legal, and operational review of the business, documented in a report shared with serious buyers. The goal is to accelerate the process, reduce surprises in the buyer's due diligence, strengthen seller credibility, and avoid re-trades from late findings. In mid-size transactions in Mexico, VDD is gaining ground when the seller wants to control the narrative, timing, and quality of information delivered to the market.

What does vendor due diligence include?

• Financial: Quality of earnings, bridge to normalized EBITDA, working capital, debt and cash.
• Tax: SAT compliance, contingencies, tax credits, corporate structure.
• Legal: Key contracts, pending litigation, intellectual property, permits and licenses.
• Operational: Founder dependence, customer concentration, supply chain, key personnel.

The VDD report is shared with serious buyers — typically after NDA — and feeds the data room with pre-validated documentation.

How does it differ from buyer due diligence?

The buyer does not substitute its due diligence with VDD: it uses VDD as a starting point to confirm and go deeper.

When should you do VDD before selling?

It makes sense when the seller targets institutional buyers or private equity funds, the business has tax or legal complexity (reorganizations, litigation, sector permits), a prior sale aborted due to diligence findings, or the seller wants to fix normalized EBITDA before receiving offers and avoid re-trades.

In simple Main Street sales with an individual buyer and clean finances, full VDD may not justify the cost. In those cases, preparing the data room, normalizing finances internally, and responding to buyer questions in post-LOI diligence suffices.

What do sellers ask about VDD?

What does a vendor due diligence report include?

Financial review (quality of earnings, normalized EBITDA, working capital), tax (SAT compliance, contingencies), legal (key contracts, litigation, intellectual property), operational (founder dependence, customer concentration, permits), and sometimes environmental and labor. The report documents findings, identified risks, and recommendations; the buyer uses it as a base for its own due diligence, which may confirm or go deeper.

How does VDD differ from buyer due diligence?

VDD is commissioned and paid by the seller before the process; buyer due diligence is commissioned and paid by the buyer after the LOI. VDD is proactive: it identifies problems before going to market. Buyer diligence is confirmatory: it validates what the seller presented and seeks additional risks. The buyer does not accept VDD without verification; it uses it to accelerate its own work.

How much does VDD cost and how long does it take?

In Mexican SMEs, a basic financial and tax VDD may cost USD 15,000 to USD 50,000 and take 4–8 weeks depending on size and complexity. A full VDD (financial, legal, operational) in mid-market transactions can exceed USD 100,000. Cost is weighed against the value of faster closing, avoiding re-trades, and projecting credibility to sophisticated buyers.

When should you do VDD before selling?

When the seller targets institutional buyers or funds, the business has tax or legal complexity, a prior sale aborted due to diligence findings, or the seller wants to fix normalized EBITDA before receiving offers. In simple Main Street sales with an individual buyer, full VDD may not justify the cost; preparing the data room and normalizing finances internally suffices.