Optimizing shareholder value of Family-owned businesses by conducting a vendor due diligence

How to conduct vendor due diligence could optimize shareholder value of family-owned businesses? At least 4 value creation paths.

According to recent statistics, 25% of Belgian family businesses plan to transfer ownership within 5 years (Family business network, 2020). Handing over a business is a strategic decision involving human and economic aspects, which are rarely reversible and highly emotional.

From our own experience, vendor due diligence is the best way to prepare these companies for their process of divestiture.

This audit enables shareholders to equip and protect themselves with key information and issues from an independent party perspective. 

It helps to list and communicate about some vulnerabilities (litigation, fiscal latencies, estate planning choices…) that are frequent in a family business. 

We see at least three main advantages.

Firstly, the possibility of solving issues before going to market. Example: valuing and selling non-operational real estate, restructuring debts, allocating dividends if the treasury is exceeding and to anticipate the delicate problem of future disruption in the work team. 

Secondly, it helps to assess and optimize the main assets: negotiating and or reconducting contracts, improving and consolidating the main strengths of the company, revising the compliance as regard new legislation and qualifying the risks in case of default. 

Finally, by communicating this report to the candidates, it allows saving precious time in the due diligence process, negotiating warranties and payments conditions.

Another positive aspect is the targeting and choice of the candidates who will all have the same level of information before preparing their offer. This competitive bidding allows the candidates to make their best offer.

Vendor due diligence performed by a professional adviser is then a value-added process for all stakeholders. It is not the prerogative of large corporations. It is adapted and highly recommended in the preparation phase of transmitting a Family-owned business. 

Do you still have questions regarding vendor due diligence? Contact us.