Vendor technical due diligence
Vendor technical due diligence is an independent review of a company's technology, commissioned by the seller and shared with prospective buyers. It sets out the technology position before buyers form their own view, can shorten their due diligence, and lets management explain known issues alongside the plan to address them.
How it differs from buy-side due diligence and exit readiness
The three are often confused because they cover similar ground. The difference is who commissions the work, who reads it and what it is for.
| Technology Exit Readiness | Vendor technical due diligence | Buy-side technical due diligence | |
|---|---|---|---|
| Commissioned by | Management | The seller | The investor or acquirer |
| Read by | Management and the board | Prospective buyers | The deal team and investment committee |
| Timing | 12 to 24 months before a transaction | Shortly before or at the start of a sale process | During the transaction, usually in exclusivity |
| Purpose | Find and fix issues while there is time | Present the position credibly and reduce buyer work | Understand inherited risk and inform price and terms |
| Typical output | An assessment and remediation plan | A report for the data room | An investment committee report |
When vendor due diligence makes sense
- A competitive process. Several bidders receive the same credible view, rather than each running its own review from scratch.
- Technology is central to the value. The more the price depends on the platform, the more it helps to frame the technology story first.
- There are known issues. It is better to explain them, with a plan, than to have them discovered.
- The timetable is tight. A good vendor report narrows the buyer's questions and can shorten the process.
When it does not
- The material issues are still unfixed. A vendor report written now documents your problems for every bidder. Fix them first.
- There is a single, committed buyer. They will almost certainly run their own review regardless.
- Technology is peripheral to the deal. The cost may not be justified.
What a credible vendor report contains
- A clear statement of scope, method and any limitations.
- Findings across strategy, product, team, engineering approach, platform and security.
- Known issues, stated plainly, with the status of remediation.
- References to the evidence behind each finding, so buyers can verify it.
Independence matters. Buyers discount a report that reads like marketing. The value of vendor due diligence comes from the buyer being able to trust it.
How buyers use it
Buyers treat a vendor report as a starting point, not a substitute for their own judgement. They will usually still ask their own questions and may commission targeted work of their own. Whether a buyer can formally rely on the report is agreed between the parties' advisers. Either way, a credible report narrows the questions and sets the tone for the technical part of the process.
Where it fits
Vendor due diligence is most effective at the end of an exit readiness programme, once the material issues have been resolved and the evidence is in place. The usual sequence is a ClearView assessment, remediation over the following months, then vendor due diligence as the sale process begins. The Technology Exit Readiness guide sets out the full journey, and technical due diligence covers both vendor and buy-side work.
Considering vendor due diligence?
Start by finding out what it would say. ClearView shows you in two weeks, while there is still time to fix it.