Vendor Due Diligence:…”Anticipation and minimization of risks are its main benefits since it allows the timely resolution of any problem detected during the process. In this way, surprises, concerns and questions from the buyers are avoided, identifying the risks of the transaction at the outset to adequately address them and prevent a reduction in the company valuation.”
Chile is facing a situation of severe political and economic instability, which began at the end of 2019. This instability has considerably increased the number of people who have diversified their investments, seeking refuge in other currencies and/or countries to reduce their investment risks in Chile.
The preceding has led to an unprecedented increase in mergers and acquisitions activity in our country and leads us to ask ourselves: What can be the best approach for the owners of a company or assets in Chile to prepare the scenario before a future sale?
In this sense, the Vendor Due Diligence appears as a proactive alternative for the seller to face the process of selling a business in an agile and efficient manner and reaching an optimal value for its sale.
Vendor Due Diligence can be defined as the audit and investigation process carried out by an independent third party appointed by the seller to show the actual legal and financial situation of the business or asset to be sold and which is carried out from the perspective of a buyer. It is designed to identify strengths and opportunities besides potential obstacles that could constitute a “deal-break” with buyers.
As in the due diligence for the purchase, the Vendor’s Due Diligence must cover a series of crucial aspects, mainly financial, legal and regulatory. This review has the advantage that any obstacle, irregularity or problem that may affects the the transaction success can be detected in time, avoiding a decrease in the value of the asset or company.
The anticipation and minimization of risks is the key benefit of the Vendor Due Diligence, as it allows for the timely resolution of any problems detected during the process. It avoids surprises, concerns, and questions from the buyers, identifying the risks of the transaction from the outset to adequately address them and prevent a reduction in the value of the asset or company.
The main benefits for a seller of commissioning a Vendor Due Diligence could be summarized as follows:
Remember that the more offers a seller can receive, the better the profit expectations. The anglicism “One offer, No gain” already says it.
María Paz Aguirre Marfull is a lawyer from Universidad de Concepción and a senior associate in the corporate practice area at Chirgwin.
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