Vendor due diligence is due diligence carried out at the expense of, and at the behest of, the seller, by independent third parties. This contrasts with due diligence carried out by the buyer.
The biggest advantage of vendor due diligence is that is speeds up the sale process, and saves costs. It eliminates the duplication of due diligence work by multiple buyers, who want answers to many of the same questions. It also provides greater credibility to facts and Numbers that the seller presents to potential buyers, because they have been verified by impartial accountants and lawyers.
Another key advantage for some sellers is that it can, insofar as it reduces the need buyer’s due diligence, is that it reduces the amount of confidential material that is disclosed to the buyer. This can be important where potential buyer may also, if they do not go ahead, be a potential competitor.
Vendor due diligence is also unlikely to wholly satisfy many different buyers. It therefore does not replace the buyer’s due diligence, but reduces it. Although you may think that anything that reduces the amount of work available for lawyers and accountants is a good thing, vendor due diligence does have its disadvantages.
One is that buyers may be wary of trusting work carried out by a third party chosen by the seller. Another is that buyers may feel that the process is too much in the control of the seller, and too much in control of the flow of information. These will tend to increase the need for buyer’s due diligence, undermining the rationale for vendor due diligence.