Vendor due diligence (VDD) is a sell-side, independent review prepared before deal launch and shared with potential buyers under NDA to provide initial assurance over the information they receive. In the UK mid-market, it can shorten timetables, widen the buyer pool, and reduce price chipping. In the lower mid-market (sub-£50m EV), however, full VDD is less common; speed and budget often favour lighter “vendor-assist” packs or a well-curated data room. Even so, the classic red flags that VDD typically identifies remain relevant at these lower deal sizes. Addressing them upfront helps minimise last-minute surprises.

A recurring issue is the inflation of ARR, where pilots, short-term contracts, professional services, or paused accounts are included in recurring revenue. Only signed, recurring contracts should be counted. Co-terming of contracts and the award of customer credits can also affect ARR and NRR if not presented clearly. Another common pitfall lies in sales channel reporting: when revenue is booked gross through resellers or marketplaces rather than net of their cut, figures can appear overstated unless tied back to cash.

Working capital can also be a trap. Deferred revenue, pre-billing, commission clawbacks, and under-accruals often surface late, so setting a fair target early is essential. IFRS 16 adds another wrinkle, as it can lift EBITDA without adding cash. Clear disclosure of lease costs and lease debt helps avoid confusion.

Change-of-control clauses are equally important, and contracts that can be terminated on a sale should be identified, with consents secured in good time.

Beyond the numbers, ownership of intellectual property and use of open-source software must be watertight to avoid legal problems. Security and data protection risks should be addressed quickly, with evidence of fixes retained. Where carve-outs are involved, stranded costs and shared licences must be measured and a Day-1 plan set.

Finally, equity and incentive structures need to be clear, with reconciled cap tables and tidy option agreements.

Handled up front, these issues reduce the likelihood of last-minute price chips and keep the timetable intact.

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