What is commercial due diligence

Commercial Due Diligence (CDD) refers to the process by which investors conduct a comprehensive, in-depth and objective evaluation and analysis of the internal and external environment and operation of the target enterprise before making investment, merger and acquisition, cooperation and other business activities, so as to judge its business value and potential risks. The purpose of commercial due diligence is to help investors make the right investment decisions, avoid or reduce investment risk, and achieve investment objectives and value.

Commercial due diligence is different from other types of due diligence, such as financial due diligence, legal due diligence and tax due diligence, which are mainly reflected in the following aspects:

The object of business due diligence is the business model, market environment, competitive advantage, customer demand, growth potential and other aspects of the target enterprise, not just financial data, legal documents, tax records and so on;

The method of commercial due diligence is to collect and analyze the internal information, external information, market research, expert interviews and other channels of the target enterprise, rather than just review and check the accounts, contracts, certificates and other documents of the target enterprise;

The result of business due diligence is to review and verify the key assumptions of the business plan of the target enterprise, evaluate its future income, profit, cash flow, market share and other indicators, as well as the possible risks and challenges, not only to confirm and disclose the financial situation, legal compliance and tax risks of the target enterprise;

The perspective of business due diligence is to focus on the future and analyze the sustainable development ability of the target enterprise, rather than just looking back at the past and reflecting the historical performance of the target enterprise.

The importance of commercial due diligence is that it can provide investors with the following values:

Understand the real situation of the target enterprise, avoid being misled by false or exaggerated information, and reduce investment risks;

Assess the commercial value of the target enterprise, determine a reasonable investment price and improve the return on investment;

Analyze the market prospect of the target enterprise, find potential opportunities and threats, and formulate effective investment strategies;

Identify the strengths and weaknesses of the target company, identify potential problems and risks, and make recommendations for improvement and optimization;

Establish trust and cooperation with the target enterprise, promote the smooth progress of investment transactions, and realize the investment objectives and value.

Commercial due diligencemethods and steps

The methods and steps of commercial due diligence can be adjusted and customized according to different investment objectives, target enterprises, market environment and other factors, but generally include the following five stages:

Determine the scope and objectives of due diligence: at this stage, investors need to clarify their investment objectives and expectations, as well as their initial understanding and judgment of the target enterprise, determine the key points and difficulties of due diligence, formulate due diligence work plans and timetables, allocate due diligence work teams and resources, communicate and coordinate with the target enterprise, and sign confidentiality agreements;

Collect and analyze information: At this stage, investors need to collect and analyze the internal and external information of the target company through a variety of channels and methods, including the target company's business plan, financial statements, market research, competitor analysis, and customer interviews., Expert consultation, etc., to understand the business model, market environment, competitive advantages, customer needs, growth potential, etc. of the target company;

Evaluate and verify the business plan: at this stage, investors need to review and verify the key assumptions of the business plan of the target enterprise, evaluate its future income, profit, cash flow, market share and other indicators, as well as possible risks and challenges, and use effective analysis tools and models, such as SWOT analysis, Porter's five forces analysis, PEST analysis, DCF valuation, etc, A quantitative and qualitative assessment of the business value and potential risks of the target enterprise;

Develop and implement a due diligence report: At this stage, investors need to develop and implement a due diligence report based on the information collected and analyzed, as well as the results of evaluation and verification. The due diligence report should include the following: profile of the target company, market analysis, competition analysis, business analysis, financial analysis, risk analysis, business value evaluation, investment recommendations and strategies, etc, the due diligence report should be presented in a clear, accurate, complete, and objective manner, and care should be taken to protect the business secrets and privacy of the target company;

Put forward suggestions and strategies: at this stage, investors need to put forward their own investment suggestions and strategies according to the contents of the due diligence report, including whether to invest, the price and method of investment, the objectives and duration of investment, the risks and returns of investment, the supervision and management of investment, etc. At the same time, investors can also put forward suggestions for improvement and optimization according to the advantages and disadvantages of the target enterprise, for example, how to improve the market competitiveness of the target enterprise, how to increase the customer satisfaction of the target enterprise, how to reduce the operating cost of the target enterprise, how to solve the potential problems and risks of the target enterprise, these suggestions and strategies should be presented in a reasonable, feasible and effective way. At the same time, attention should be paid to the communication and cooperation with the target enterprise to reach consensus and agreement.

Commercial due diligenceDifficulties and challenges

Business due diligence is a complex and arduous task, which involves a wide range of knowledge and skills, as well as the influence and changes of many factors. Therefore, investors may encounter the following difficulties and challenges in the process of business due diligence:

How to obtain accurate and complete information: Information is the foundation and core of commercial due diligence. Investors need to obtain the internal and external information of the target enterprise through various channels and methods. However, these information may have the following problems: First, the reliability of information. The target enterprise may conceal or exaggerate some information intentionally or unintentionally to improve its commercial value or reduce its commercial risk, investors need to verify and verify the authenticity and validity of the information; the second is the integrity of the information, the target enterprise may omit or ignore some information due to confidentiality or negligence, or cannot provide some information due to the sensitivity or complexity of the information, investors need to supplement and expand the comprehensiveness and depth of the information; the third is the timeliness of the information, the information of the target enterprise may change or become outdated due to changes in the market or the impact of competition. Investors need to track and adjust the update and variability of the information.

How to deal with the uncertainty and variability of information: Information is the input and output of business due diligence. Investors need to evaluate and verify the business value and potential risks of the target enterprise according to the information collected and analyzed. However, the information may have the following problems: First, the uncertainty of information. The information of the target enterprise may contain some uncertain factors such as assumptions, predictions, estimates and probabilities, these factors may affect the future performance and development of the target enterprise. Investors need to make quantitative and qualitative analysis of the uncertainty of information, as well as sensitivity analysis and scenario analysis to evaluate the investment results and risks under different assumptions and situations. The second is the variability of information. The information of the target enterprise may change due to the passage of time or the occurrence of events, these changes may affect the current situation and future prospects of the target enterprise. Investors need to dynamically monitor and adjust the variability of information, as well as identify and manage risks to cope with possible changes and risks.

How to use effective analysis tools and models: analysis tools and models are the methods and means of business due diligence. Investors need to use effective analysis tools and models to process and analyze the information of the target enterprise to evaluate its business value and potential risks. However, these tools and models may have the following problems: First, the choice of tools and models, investors need to choose appropriate tools and models according to different investment objectives, target enterprises, market environment and other factors, such as SWOT analysis, Porter's five forces analysis, PEST analysis, DCF valuation, etc., but these tools and models may have different advantages and disadvantages and scope of application. Investors need to evaluate and compare the applicability and effectiveness of tools and models. The second is the application of tools and models, investors need to use tools and models to calculate and reason based on the information collected and analyzed in order to draw conclusions and recommendations, but these tools and models may have different assumptions and conditions, and investors need to test and adjust the assumptions and conditions of the tools and models to ensure the accuracy and reliability of the results.

How to deal with the needs and expectations of different stakeholders: Stakeholders are participants and influences of business due diligence. Investors need to communicate and collaborate with different stakeholders to complete the process and results of business due diligence. However, these stakeholders may have the following problems: First, the diversity of stakeholders, investors need to communicate and cooperate with the target company, its shareholders, management, employees, customers, suppliers, partners, competitors, industry associations, government agencies, media and other stakeholders, but these stakeholders may have different backgrounds, positions, goals, interests, attitudes, behaviors, etc. Investors need to identify and classify the diversity of stakeholders, as well as communicate and coordinate; the second is the conflict of stakeholders. Investors need to reach agreement and consensus with different stakeholders to promote the smooth progress and successful completion of business due diligence. However, these stakeholders may have different needs and expectations, such as investors want to obtain more information and lower prices, while target enterprises want to protect their information and raise their prices, investors need to analyze and resolve stakeholder conflicts, as well as negotiate and compromise.

How to deal with the changing market and competitive environment: The market and competitive environment are the background and influencing factors of business due diligence. Investors need to evaluate and adjust the business value and potential risks of the target enterprise according to the changing market and competitive environment to formulate effective investment decisions and strategies. However, these markets and competitive environments may have the following problems: First, the complexity of the market and competitive environment, investors need to consider the market scale, structure, growth, trend, segmentation, demand, supply, price, channel, regulation and other factors, as well as the intensity, scope, form, strategy, advantages, disadvantages and other factors of competition, but these factors may have different relevance and influence. Investors need to analyze and understand the complexity of the market and competitive environment, as well as make judgments and predictions; the second is the dynamics of the market and competitive environment. Investors need to adjust the business value and potential risks of the target company according to the changes in the market and competitive environment to adapt to new situations and opportunities, but these changes may be sudden and unpredictable. Uncontrollable, investors need to monitor and respond to the dynamics of the market and competitive environment, as well as flexible and rapid decision-making and execution.

Business of Champ Consultingbest serviceCase

Champu Consulting is a professional business due diligence service provider with rich industry knowledge and experience, as well as innovative technologies and methods to provide customers with high-quality business due diligence reports and valuable investment advice. The following are some examples of commercial due diligence services provided to clients by Champ Consulting:

Case 1: An international investment fund plans to invest in a Chinese e-commerce platform and entrusts Champu Consulting to conduct commercial due diligence. By collecting and analyzing the internal and external information of the target enterprise, Shangpu Consulting Company evaluates the business model, market environment, competitive advantage, customer demand, growth potential and other aspects of the target enterprise, as well as the possible risks and challenges, and uses tools and models such as SWOT analysis, Porter's Five Forces analysis, PEST analysis and DCF valuation, A quantitative and qualitative assessment of the business value and potential risks of the target enterprise is carried out, a due diligence report is developed, and investment recommendations and strategies are put forward. The due diligence report of Shangpu Consulting Company shows that the target company has high commercial value and low investment risk, strong market prospects and competitive advantages, high customer demand and satisfaction, and high growth potential and profitability. Investment funds are recommended to invest, and some suggestions for improvement and optimization are put forward, such as how to improve the brand awareness of the target enterprise, how to expand the market channels of the target enterprise, how to optimize the operational efficiency of the target enterprise. Based on the due diligence report and recommendations of Shangpu Consulting, the investment fund has conducted successful investment transactions with the target enterprise and achieved the investment objectives and value.

Case 2: A domestic pharmaceutical company plans to acquire a U.S. biotechnology company and entrusts Champ Consulting to conduct commercial due diligence. By collecting and analyzing the internal and external information of the target enterprise, Shangpu Consulting Company evaluates the business model, market environment, competitive advantage, customer demand, growth potential and other aspects of the target enterprise, as well as the possible risks and challenges, and uses tools and models such as SWOT analysis, Porter's Five Forces analysis, PEST analysis and DCF valuation, the business value and potential risks of the target enterprise are quantitatively and qualitatively evaluated, a due diligence report is formulated, and merger recommendations and strategies are put forward. The due diligence report of Shangpu Consulting Company shows that the target enterprise has high commercial value and high merger and acquisition risk, strong market prospect and competitive advantage, high customer demand and satisfaction, high growth potential and profitability, but there are also some problems and risks, such as the technology protection and transfer of the target enterprise, the legal compliance and tax risk of the target enterprise, the integration of the culture and management of the target enterprise, etc., it is recommended that the pharmaceutical company carry out mergers and acquisitions, and put forward some improvement and optimization suggestions, such as how to protect and Use the technical advantages of the target enterprise, how to solve the legal and tax problems of the target enterprise, how to achieve the coordination of the culture and management of the target enterprise. Based on the due diligence report and recommendations of Champ Consulting, the pharmaceutical company conducted a successful M & A transaction with the target company and achieved the M & A objectives and value.

Case 3: An international hotel group plans to cooperate with a Chinese hotel chain by entrusting Champ Consulting to conduct commercial due diligence. By collecting and analyzing the internal and external information of the target enterprise, Shangpu Consulting Company evaluates the business model, market environment, competitive advantage, customer demand, growth potential and other aspects of the target enterprise, as well as the possible risks and challenges, and uses tools and models such as SWOT analysis, Porter's Five Forces analysis, PEST analysis and DCF valuation, A quantitative and qualitative assessment of the business value and potential risks of the target enterprise is carried out, a due diligence report is developed, and cooperation recommendations and strategies are proposed. The due diligence report of Shangpu Consulting Company shows that the target enterprise has high commercial value and low cooperation risk, strong market prospect and competitive advantage, high customer demand and satisfaction, and great growth potential and profitability. It is suggested that the hotel group should cooperate and put forward some suggestions for improvement and optimization, such as how to improve the service quality and standards of the target enterprise, how to expand the market coverage and influence of the target enterprise, how to optimize the cost structure and profit margin of the target enterprise. According to the due diligence report and recommendations of Shangpu Consulting, the hotel group has conducted successful cooperative transactions with the target enterprises and achieved the cooperative goals and values.

Conclusion

Business due diligence is a professional business evaluation and analysis process, which can help investors to conduct a comprehensive, in-depth and objective evaluation and analysis of the internal and external environment and operation of the target enterprise before conducting investment, mergers and acquisitions, cooperation and other business activities, so as to judge its commercial value and potential risks, so as to make correct investment decisions, avoid or reduce investment risks, and achieve investment goals and values. The methods and steps of business due diligence include: determining the scope and objectives of due diligence, collecting and analyzing information, evaluating and verifying business plans, developing and executing due diligence reports, and making recommendations and strategies. The difficulties and challenges of business due diligence include: how to obtain accurate and complete information, how to deal with the uncertainty and variability of information, how to use effective analytical tools and models, how to deal with the needs and expectations of different stakeholders, and how to deal with the changing market and competitive environment. Shangpu consulting company is a professional business due diligence service provider, with rich industry knowledge and experience, as well as innovative technology and methods, to provide customers with high-quality business due diligence reports and valuable investment advice, and provide strong support and guarantee for customers' business success.