4 min read
What Exactly Is Vendor Assist?
Vendor assist is essentially a dry-run of a sale, built around an early form of due diligence. Most M&A processes have historically used a Confidential Information Memorandum (CIM) as the cornerstone for the sales presentation, but this is an increasingly dated approach as the CIM rarely has sufficient information to create offers on a global basis. Whilst a good summary is very helpful, a clearly organised and detailed ‘marketing’ data room with more depth is easy to achieve and increasingly expected by buyers. Most importantly, it enables both sides to get to a ‘yes’ or ‘no’ more quickly and more accurately which also reduces later value challenges.
With a more detailed data pack becoming a standard part of the process, why not simply bring it even further forward, but directly for the benefit of the vendors to help them prepare? This is the concept of a vendor assist process and report. A sell-side advisor uses their experience of buyers and due diligence to bench test the business and its information, thereby ‘assisting the vendors’. The result is a clear information report for vendors on what to improve pre-sale and covers a variety of aspects, including the business model, reporting, threats, opportunities and taxation.
This form of seller due diligence is highly effective at creating more valuable companies. Many owners see company value simply as a biproduct of earnings, however, the quality of earnings and your establishment has as much a bearing on value. A volatile cash flow, over-dependence on key staff, weak information and poor governance all increase risk and limit forecast yield, so that even a motivated, strategic buyer will downgrade value.
Before selling, a ‘vendor assist’ exercise (seller due diligence) and business review will help you secure a better price or investor and ensure that you are ‘sale ready’. Some leaders see preparation as an extra cost believing that their business is ‘good enough’ already. However, there are show-stoppers and weak areas in most companies that can be tidied up with a little investment. Such as, what characteristics and concepts beyond the corporate financial science of return on capital can we target to create more valuable companies?
How Can Vendor Assist Help?
Many leaders are not sufficiently aware of the threats and opportunities that may be present, both internally in the organisation, and the external environment. This is often because the company is successful; therefore, an assumption is made that the business has an advantage and value, but this can lead to complacency. An “everything is okay – we are making steady progress” mindset takes hold and preparation is forgotten. A vendor assist sale preparation process will help you:
- Identify key value drivers to enhance your pre-sale strategy
- Drive a ‘we want, we need’ buyer motivation
- Prepare and present your business for sale or investment
- Future-proof your business model
- Reduce key risks and remove ‘show-stoppers’
Why Should You Do It?
We know the right areas to prepare and the right strategy to position the business. To build and realise the value in a business is hard and therefore preparation is key. The objective of a ‘vendor assist’ evaluation is to create a sale or investment-ready business, which in turn creates a ‘when’, not ‘if’ position.
Interested in learning more about Vendor Assist and what It can do for you and your business? Watch our webinar “Vendor Assist – How to Strategically Prepare for Sale & Vendor Due Diligence?” here.
Avondale are EME business advisors. Through our management consultancy, we support growth and scaling up. Through our M&A and corporate work, we secure investment and finance for EME businesses, help people buy and sell companies and enhance shareholder value. We recognise ambitious owners who require ambitious, specialist advisors.