Investment due diligence consulting is a professional service designed to help investors have a comprehensive and in-depth understanding of the business model, market environment, competitive advantage, risk challenges and other aspects of the target enterprise before making acquisitions, mergers and acquisitions, listing and other transactions, so as to make more rational and scientific investment decisions. This paper introduces the purpose, scope, process, method and value of investment due diligence consulting, as well as the professional experience and advantages of Shangpu Consulting Group in this field, which provides a reference framework and practical case for investors.

Purpose of 1. Investment due diligence advice

Investment due diligence consulting, also known as Due Diligence (DD), generally refers to investors in the target enterprise to reach a preliminary cooperation intention, through consensus, the enterprise's historical data and documents, management personnel's background, market risk, management risk, technical risk and capital risk to do a comprehensive and in-depth review.

The main purpose of investment due diligence consulting is to solve the information asymmetry between the two sides of the investment and help investors further determine the value and risk of the enterprise. The reason is very simple. Only by contacting the core team of the company in the early stage, investors cannot fully understand a company. Even if investors are optimistic about the company's business and team, there will still be many concerns, which need to be resolved through more in-depth investigation. Therefore, investment due diligence advice is a protective measure for the interests of investors.

In fact, for the enterprise team, investment due diligence consultation is also an excellent opportunity to help the team complete a re-combing and understanding from the inside to the outside. Even if the financing cannot be reached immediately, at least the team can clearly see how many pounds the company has and what aspects need to be optimized and improved. For businesses, recognizing this value is far-reaching.

Scope of 2. investment due diligence advice

The scope of investment due diligence advice typically includes the following:

-Business due diligence: mainly focus on the business model, market environment, competitive advantage, development strategy and other aspects of the target enterprise, and evaluate the profitability, growth potential and market position of the enterprise.

-Financial due diligence: mainly focus on the financial situation, financial management, financial risk and other aspects of the target enterprise, assess the enterprise's assets and liabilities, income and expenditure, cash flow, tax compliance and so on.

-Legal due diligence: mainly focuses on the legal qualifications, legal risks and legal disputes of the target enterprise, and evaluates the legality, compliance and rationality of the enterprise.

-Technical due diligence: mainly focus on the technical capability, technological innovation and technological risk of the target enterprise, and evaluate the technical level, technological advantage and technological protection of the enterprise.

-Human resources due diligence: mainly focus on the target enterprise's human resources situation, human resources management, human resources risk, etc., to assess the enterprise's talent structure, talent incentives, brain drain and so on.

The scope of investment due diligence consulting is not fixed and needs to be customized according to the needs of investors, the characteristics of the target enterprise, the characteristics of the industry and other factors. Generally speaking, investors will choose the areas to focus on according to their professional fields and risk preferences, or entrust third-party professional institutions to carry out comprehensive due diligence services.

3. Investment due diligence consultation process

The process of investment due diligence consulting generally includes the following steps:

-Step 1: Clarify due diligence requirements. After preliminary contact, the investment institution has a preliminary understanding of the industry prospects, business model, core team, etc. of the target company. If the two parties intend to have in-depth contact, they usually sign a "Letter of Intent for Investment" (also known as a list of investment terms and TermSheet). In the letter of intent, the parties will identify the key elements of the project investment, such as project valuation and investment amount, investment method and price payment. Almost all of them involve a special due diligence agreement that explicitly makes due diligence a prerequisite for further formal investment agreements. As soon as the agreement becomes effective, it enters the preparatory phase of due diligence.

-Step 2: Prepare for due diligence. During the preparation process, the investment institution will proceed with two things. One is to set up a due diligence team and the other is to collect due diligence data. In terms of team formation, because due diligence involves investigating and understanding all aspects of the enterprise, due diligence teams are usually composed of members with multiple backgrounds, specializing in investment, industry, business, finance, law, etc. In terms of information preparation, investment institutions take two main approaches. First, enterprises cooperate to provide internal information. After signing the letter of intent, the investment institution will sort out a list of information and send it to the enterprise, and within the agreed time, the enterprise will feed back the corresponding information to the investment institution. The second is to collect industry and enterprise information through other channels. For example, investment institutions will seek relevant information from industry experts, upstream and downstream stakeholders, and professional research institutions. After completing the preparatory work, the investment institution formally carried out the due diligence work.

-Step 3: Conduct due diligence. To carry out due diligence, the due diligence team mainly takes three ways. One is the field visit. Lots of answers on the spot. For example, walking into the company's factory building, you can intuitively feel the work efficiency of employees, the degree of orderly management, the amount of inventory accumulation, and the daily shipments. Two is the data review. Based on internal and external data from the target company, a professional due diligence team can often capture key value and risk points from the clues. Three is the personnel interview. Interviews are not limited to key personnel at all levels and functions within the enterprise, important customers, important suppliers, and even competitors. Through interviews, the team can have a deeper understanding of the company's operating conditions, market feedback, and competitive dynamics.

-Step 4: Output a due diligence report. After the completion of the due diligence work, the due diligence team will collate the information obtained from the analysis and form a due diligence report. A due diligence report usually includes the following sections: purpose of due diligence, scope of due diligence, methods of due diligence, due diligence conclusions, due diligence recommendations, etc. The main function of the due diligence report is to provide investors with a comprehensive, objective and true assessment of the target enterprise, and to help investors judge whether to continue to invest and how to invest.

4. approach to investment due diligence advice

The main methods of investment due diligence advice are as follows:

-Desktop research (Desk Research): refers to the collection, collation, analysis of the target enterprise's public information, such as official website, news, reports, data, etc., to understand the basic situation of the enterprise, industry dynamics, market trends, etc.

-Field survey (Field Research): refers to the field visit to the target enterprise's office space, production base, sales outlets, etc., to observe the operation status, management level, product quality, customer satisfaction, etc.

-Personnel interviews (Interview): refers to the communication with the management, employees, customers, suppliers, competitors and other relevant personnel of the target enterprise to obtain internal information, external evaluation, potential problems, future prospects, etc.

-Financial Audit (Financial Audit): refers to the verification of the financial statements, books, vouchers, etc. of the target enterprise to verify the financial position, financial management, financial risks, etc.

-Legal Review (Legal Review): refers to the inspection of the legal documents, contracts, certificates, permits, etc. of the target enterprise to confirm the legal qualifications, legal risks, legal disputes, etc. of the enterprise.

The approach to investment due diligence advice is not isolated, but complementary. Generally speaking, the due diligence team will choose the appropriate method according to the purpose, scope, time, cost and other factors of the due diligence, or use a combination of methods to achieve the best due diligence effect.

5. the value of investment due diligence advice

The value of investment due diligence consulting is mainly reflected in the following aspects:

-Identify business investment opportunities. Through the in-depth analysis of the business model, market environment and competitive advantage of the target enterprise, investors can find the core competitiveness of the enterprise, evaluate the growth potential of the enterprise, identify the investment value of the enterprise, and grasp the business investment opportunities.

-Identify business investment risks. Through a comprehensive review of the financial situation, legal risk and technical risk of the target enterprise, investors can identify the potential problems of the enterprise, assess the risk level of the enterprise, and formulate the risk prevention measures of the enterprise, so as to avoid the risk of commercial investment.

-Optimize business investment decisions. Through the comprehensive evaluation of the target enterprise, investors can determine the reasonable valuation of the enterprise, formulate the investment strategy of the enterprise, optimize the investment structure of the enterprise, so as to improve the efficiency of business investment.

-Promoting business investment cooperation. Through in-depth communication with the target enterprise, investors can enhance their trust in the enterprise, understand the expectations of the enterprise, coordinate the interests of the enterprise, and promote business investment cooperation.

6. the professional experience and advantages of Champ Consulting Group

Shangpu Consulting Group (Shangpu Consulting Group) is a professional investment due diligence consulting agency with many years of industry experience and rich project cases, providing high-quality investment due diligence consulting services to various investors around the world. The professional experience and advantages of Shangpu Consulting Group are mainly reflected in the following aspects:

-Team advantage. Shangpu Consulting Group has a professional team composed of senior investment experts, industry experts, business experts, financial experts, legal experts, etc., which can provide investors with all-round, multi-angle and in-depth due diligence services.

-Resource advantages. Shangpu Consulting Group has a wide range of industry resources and network resources, which can provide investors with timely, accurate and comprehensive industry information, market information, enterprise information, etc.

-Method advantages. Shangpu Consulting Group has mastered advanced due diligence methods and tools, which can provide investors with scientific, systematic and effective due diligence programs and reports.

-Value advantage. Shangpu Consulting Group focuses on creating value for investors and can provide investors with targeted, constructive and operational due diligence advice and investment advice.

Shangpu Consulting Group adheres to the concept of "professionalism, integrity, innovation and cooperation", and is committed to becoming the best partner for investors, helping investors find business investment opportunities and value, and achieve business investment success.