Vendor due diligence is useful when a business seeks in buying, entering into a relationship, or partnering up with another business. Similar to customer due diligence, a vendor due diligence in UAE is important as it provides reassurance for the potential buyer that the prospect for the transaction is healthy financial-wise. In order to conduct vendor due diligence in UAE properly, a business has to understand all the kinds of data that are required in demonstrating a company’s financial health as well as how information crucial to assessing a company should be collected.
What's vendor due diligence?
Vendor due diligence is a type of due diligence that’s commissioned by the business that is selling or is the vendor in a transaction. A due diligence report is made available in order for prospective buyers to review on a basis of non-reliance.
The approach when it comes to vendor due diligence has to be both independent and balanced. the desire of the vendor has to be recognized in which it wants to take control over the process and at the same time protect shareholder value. As for balanced, it’s balanced by the need for an independent and robust report that’s used by investors or buyers.
The process of vendor due diligence in UAE provides assurance that prospective buyers have information and analysis required in making an informed buying decision. Many issues can be presented and disclosed in a way that is balanced while accommodating the timetable of the vendor, making sure that there is minimal disruption onto the business that is to be put up for sale during the process of vendor due diligence. This is often a risk that’s overlooked with companies that don’t commission vendor due diligence.
The story of a business’ evolution, forecasts, historical trading, and more can be presented in a manner that’s supported by financial analysis. With the help of experts, vendor due diligence involves a flexible approach that prioritizes all the key areas.
Find out more detail: Corporate Financial Advisory – Roles and Responsibilities
Vendor due diligence process involves the following phases:
- The target business or vendor engages an independent third party in performing the process of vendor due diligence which takes an audit form. The third party has to be independent as well as qualified in conducting an audit and impartial.
- A third party then conducts an audit on the target business prior to commencement of partnership or sale agreement.
- A third party creates a draft report from the vendor due diligence on behalf of a vendor which is presented to prospective investors or buyers.
- After the partnership or sale agreement has been completed, the buyer will get the final version for the report from the vendor due diligence procedure.
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What is involved in a UAE vendor due diligence?
Vendor due diligence entails a broad range of critical business considerations. The information and processes that are involved are as follows:
- General information regarding the target company such as operational capacity, legal status, incorporation documents, geographic location, and tax registration number;
- The target business’ beneficial ownership;
- The historical financial data of the target business;
- The cash flow and expenditure on assets of the target company;
- Evaluation of the projected growth and existing or potential business risks;
- Liabilities, contingencies, and other debts of the target business;
- The operational compliance performance of the target business
When selecting a reputable firm in-handling the vendor due diligence process in UAE, it can also include the following aspects:
- Screening for risks that are specific to the vendor as well as the industry wherein it operates
- Screening for third party relationships of the business and the regulatory environment
- Screening for sanctions, restrictions, and watch lists that are placed onto the business by authorities either local or international
- Screening for political party connections which may expose a vendor to high risk of laundering money
- Screening for any negative news that are against a vendor or target company
A thorough and in-depth vendor due diligence requires a third party auditor in conducting a thorough site visit which includes verification of certain protections and procedures. The auditors in Dubai, UAE will also check the legitimacy of the third party relationships of the business, its clients and customers, and well as speak with parties. This is a valuable stage and will prove very useful when it comes to the verification of risk for money laundering.
Read more: What are the Due Diligence Activities involved in Merger and Acquisition Transaction?
In some cases, a vendor may be needed to complete a questionnaire for due diligence. It can be about the business so as to corroborate or clarify key areas of the audit being conducted by an expert.
Vendor due diligence in UAE facilitates a successful partnership or sale of companies. However, it also helps vendors in gaining understanding of their companies. Call us in Farahat & Co as our experts can verify any concerns you may have surrounding vendor due diligence in UAE.
