Liability and Reliance in Relation to Vendor Due Diligence

The legal investigation of a target company in M&A transactions, i.e. a "legal due diligence", has traditionally been performed on behalf of the potential purchaser. The trend over recent years has however been that the investigation is increasingly performed by the vendor’s legal advisors. The procedure is called a (legal) Vendor Due Diligence (VDD), and the product, a Vendor Due Diligence report, is often offered to potential purchasers as a supplement to an Information Memorandum containing the vendor’s risk analysis of the target company. The VDD report thus forms the (sole) basis for the assessment of the legal circumstances of the target and the transaction. The knowledge of risks, linked to the target, obtained by the purchaser in a traditional due diligence may have given the purchaser a strong position when negotiating the deal. A VDD balances the positions of the parties and also serves the purpose of speeding up the sale process.