That good preparation is important in a sales process will come as no surprise. But what is good preparation, and when do you start preparing a sales process? There are many different options here, depending also on when one intends to start the sales process.
At a shorter notice before the start of a sales process, it is increasingly common to opt for conducting a so-called Vendor Due-Diligence ("VDD"). The VDD is similar to the due diligence that comes up later in the sales process, but in this case is initiated precisely from the seller.
Typically, a VDD is conducted on one or more business aspects such as financial, tax and legal. This article will elaborate on the aforementioned different VDD areas, as well as the added value of a VDD for a selling shareholder.
Financial
A financial VDD focuses on the company's historical financial data, looking in detail at developments at the level of customers and suppliers, price developments, seasonal effects and (working capital) investments, among other things.
The results will partly confirm what the DGA already suspected, but there will also be analyses that shine a different light on, for example, price and margin trends or dependence on certain customers or suppliers.
Tax
The fiscal VDD, often chosen in combination with a financial VDD, focuses in particular on fiscal compliance within the company; Are payroll taxes paid on time, is VAT paid on time, etc.?
When a company makes (frequent) use of tax schemes and subsidies such as the innovation box or WBSO, it can be important to clarify the impact of this. Especially in combination with a possible takeover that could potentially affect the company's eligibility for such tax schemes and subsidies.
Legal
A legal VDD is pre-eminently a part of the preparation in which matters can still be repaired or adjusted for the benefit of the sales process. This could include, for example, the contractual relationship with key customers and suppliers, whether staff are covered by the correct pension plan, but also issues such as, for example, the ownership of customized software; does it belong to the developer, or does it belong to the company?
There are often issues that come to light that cannot easily be adjusted before the sales process. However, the fact that these issues have come to light well before the sales process, gives the M&A adviser the space to develop a strategy around them, how to communicate this to potential buyers in due course.
How does the VDD help the selling shareholder?
The insights obtained from the various VDDs significantly enhance the understanding of the company. By gaining further insight regarding financial, tax and legal concerns early in the sales process, potential risks and red-flags can be remedied in a timely manner or strategically presented to a potential buyer, improving the overall attractiveness of the company.
In addition, the ability to share VDDs with selected parties prior to bidding gives more weight to the final bid to be received. The VDD thus provides more certainty and less room for negotiation during due diligence.
At the same time, the knowledge of the VDDs already performed, gives potential buyers more comfort when submitting a bid. The ability to bid on externally validated figures can be a determining factor in a potential buyer's consideration of whether or not to bid, especially when potential buyers are large strategic parties or international Private Equity parties.
