Vendor Due Diligence in the Mid-Market: The Overlooked Factor Driving Value
In the Spanish mid-market, many companies have strong assets but are insufficiently prepared for a transaction. In 2026, this carries a greater cost: institutional buyers are becoming increasingly selective, turning uncertainty into lower valuations and more demanding deal terms.
This is where vendor due diligence (VDD) ceases to be a “nice-to-have” and becomes a genuine value driver.
In a VDD process, it is the seller who commissions an independent review before approaching potential buyers. The objective goes beyond verifying assets and liabilities: it is about validating the fundamentals underpinning the transaction, particularly profitability and cash-generating capacity. A well-executed VDD reduces information asymmetries and helps avoid disruptive reviews later in the transaction.
Today’s market rewards certainty, not promises
La negociación ya no va de múltiplos: va de riesgo. Y el riesgo cuando no está acotado, se traduce en:
- Retenciones y escrow más agresivos.
- Earn-outs difíciles de cumplir.
- Ajustes de capital circulante desfavorables.
- Warranties extensas y responsabilidad post-cierre.
- O directamente: procesos que se alargan y se caen.
El vendedor que controla su información controla su operación. El que no, queda a merced del comprador.
Negotiations are no longer driven by multiples alone; they are driven by risk. And when risk is not clearly understood and managed, it often translates into:
- More aggressive holdbacks and escrow arrangements.
- Earn-outs that are difficult to achieve.
- Unfavourable working capital adjustments.
- Broader warranties and greater post-completion liability.
- Or, quite simply, processes that drag on and ultimately fall apart.
Sellers who control their information are better positioned to control the transaction. Those who do not are left negotiating on the buyer’s terms.
When Does a VDD Make Sense?
Not every sale process requires a vendor due diligence. It is typically most effective for businesses of a certain scale and, above all, where there are issues that could distort an investor’s perception of the company. A VDD is particularly valuable when there is uncertainty around:
- The true level of EBITDA and earnings sustainability.
- One-off items or adjustments arising from changes in accounting policies or reclassifications.
- Operational or financial contingencies that management is aware of, but whose potential impact has not been fully quantified.
- Recurring risks that could become magnified in the year of the transaction.
Typical examples include overdue receivables (where a 3–4% rate can trigger difficult discussions around earnings quality and cash generation in a growth year) or a one-off accounting change that, if not properly explained and substantiated, may be interpreted by investors as a material risk.
Where Value Is Created (or Destroyed)
In our experience, friction tends to be concentrated in six key areas:
1. EBITDA Normalisation
Recurring costs presented as exceptional items, non-normalised management expenses, or an overreliance on key customers or suppliers. Buyers will identify these issues and adjust their valuation accordingly.
2. Working Capital and Cash
This is often where the most painful price adjustments emerge. A poorly structured working capital mechanism can quickly turn an attractive headline multiple into a disappointing outcome for the seller.
3. Tax Liabilities
Latent tax exposures, differing interpretations of tax treatment, tax loss carry-forwards and related-party transactions. Tax issues do not usually derail a transaction, but they can have a significant impact on deal terms.
4. Employment Liabilities
Staff turnover, employee transfers, collective bargaining agreements, undocumented remuneration policies and unaccrued variable compensation. Employment-related liabilities can be perceived as a greater risk by buyers when there is limited visibility.
5. Carve-Outs and Asset Separation
Where the target company includes assets that are not essential to the buyer’s investment case (for example, a storage facility) these can be separated from the business and retained by the seller, who may then lease them back. This approach can reduce the transaction value and improve the buyer’s returns, while allowing the seller to retain ownership of the asset and benefit from a recurring rental income stream.
6. Contracts, Technology and Cybersecurity
Change-of-control provisions, reliance on licences, access management, cybersecurity vulnerabilities and the absence of robust processes. In both industrial and service-based businesses, these factors now carry weight.
What Good Sellers Do Before Going to Market
The companies that maximise value take the opposite approach to what is often seen in practice: they do not launch a sale process and then try to fix issues along the way. They prepare first, then sell.
Executive checklist (what genuinely influences outcomes):
An equity story backed by numbers.
A well-structured data room with clear version control, audit trails and consistent documentation.
A quality of earnings report (or equivalent analysis) to anticipate EBITDA discussions.
A clear risk map and mitigation plan.
A well-defined SPA strategy, including which warranties are reasonable, where liability limits should sit and which exclusions can be justified.
The objective is simple: reduce uncertainty before the buyer turns it into a discount.
Conclusion
In 2026, with institutional buyers demanding speed, certainty and scalability, and increasingly complex transactions, vendor due diligence has become the foundation that brings structure to the process and aligns stakeholders without burdening the buyer with that complexity.
Because in the mid-market, the real differentiator rarely lies in the asset itself, but in how the transaction is executed. Successful exits begin months before a business is brought to market; selling well is not an event, but a strategy.
Manuel Urrutia
CEO de Confianz
