Content of the 1. investment due diligence report

The content of the investment due diligence report can generally be divided into the following six parts:

-General: Summarize the basic situation of the target enterprise, industry background, main highlights and risks, as well as investment proposals and plans.

-Legal: Analyze the legal compliance, shareholding structure, major contracts, litigation and arbitration of the target company, and assess legal risks and impacts.

-Business: Analyze the products of the target enterprise/Services, Customers/Suppliers, market share, competitive advantage/Business situations such as weaknesses to assess business development potential and competitiveness.

-Industry: Analyze the development trend, market size, regulatory policy, competitive landscape and other industry conditions of the target company's industry, and assess industry opportunities and threats.

-Finance: analyze the financial statements, cash flow, profitability, financial policies and other financial situation of the target enterprise, and evaluate the financial position and value.

-Investment plan related: according to the comprehensive evaluation of the target enterprise, design the investment plan, including valuation method, investment amount, equity ratio, return expectation, etc., and propose risk control measures.

Scope of the 2. Investment Due Diligence Report

The scope of the investment due diligence report depends primarily on the characteristics of the target enterprise and the needs of the investor. In general, the following aspects must be covered:

-Historical evolution and current situation of the target enterprise

-Shareholder background and shareholding structure of the target company

-Main products of the target enterprise/Services and Market Positioning

-The development trend and competition pattern of the target enterprise's industry

-Financial position and value of the target business

-Main risks and countermeasures of the target enterprise

-Investors' investment objectives and plans

According to the different situations of the target enterprises, some other investigations can be added, such:

-Technological innovation and R & D capability of the target enterprise

-Target corporate social responsibility and environmental impact

-Human resources and organizational culture of the target enterprise

-Listing possibilities and exit channels of the target enterprise

Operational process for 3. investment due diligence reports

The operational process of investment due diligence reporting generally includes the following stages:

-Develop a survey plan: determine the purpose, scope, method, time, personnel, etc. of the survey according to the needs of investors and the characteristics of the target enterprise.

-Investigation and data collection: collect and verify all aspects of information of the target enterprise by reviewing documents, referring to external information, interviews with relevant personnel, and on-the-spot investigation of the enterprise.

-Drafting due diligence report and risk control report: Based on the information collected, analyze the value, risk and investment feasibility of the target enterprise, and form due diligence report and risk control report.

-Internal review: Internal review of due diligence reports and risk control reports to check for omissions, errors or inconsistencies to ensure the quality and accuracy of the reports.

-Design investment plan: design investment plan according to due diligence report and risk control report, including valuation method, investment amount, equity ratio, return expectation, etc., and propose risk control measures.

Methodology for 4. investment due diligence reporting

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

-Comparative analysis: Assess the strengths, weaknesses and competitiveness of the target enterprise by comparing the differences between the target enterprise and other enterprises of the same industry or size in various aspects.

-Financial analysis: by analyzing the financial statements of the target enterprise, calculating various financial ratios, assessing the financial position and value of the target enterprise.

-Valuation analysis: by selecting appropriate valuation methods, such as price-to-earnings ratio method, price-to-book ratio method, cash flow discount method, etc., calculate the valuation of the target enterprise and compare it with the market reference price.

-Risk Analysis: By identifying the various risks of the target enterprise, such as market risk, management risk, technical risk, financial risk, legal risk, etc., and assessing its possible impact and loss.

-Sensitivity analysis: Assess the robustness of investment options by changing some key factors or assumptions to observe their impact on the value of the target enterprise or return on investment.

5. Investment due diligence reporting cases

In order to better illustrate how to make a perfect investment due diligence report, this article will show a sample of an investment due diligence report, taking into account the specific case of Champ Consulting (hereinafter referred to as "Champ"). Shangpu is a company specializing in providing management consulting services for small and medium-sized enterprises. The main services include strategic planning, organizational structure optimization, human resource management, financial management, marketing, etc. Shangpu's customers are mainly distributed in the fields of manufacturing, service industry, education and training, etc.1000Companies provide professional consulting services. The core competitiveness of Shangpu lies in its consulting team with rich experience, high professional quality and good service attitude, as well as a set of perfect consulting methods and tools. Shangpu's development goal is to become China's leading small and medium-sized enterprise management consulting service provider.

Assuming that an investment institution is interested in Champ and intends to invest in it, the following is a sample of possible investment due diligence reports:

Investment due diligence report of Champu Consulting Company

General

Basic situation of 1.1 target enterprise

Company: Beijing Shangpu Consulting Co., Ltd

-Time of establishment:2015Year6Month

-Registered capital:1000Ten thousand yuan

-Legal Representative: Zhang San

-Registered address: No. 1, a road, Chaoyang District, Beijing

-Main business: providing management consulting services for small and medium-sized enterprises

-Shareholding structure: Zhang San holds shares60%, Li Si holds shares20%, Wang Wu holds shares10%, Zhao Liu holds shares10%

-Employee size: approx.100People, of which the consultant is about.80People, administrative staff about20People

-Operating income:2018About year10billion yuan,2019About year12billion yuan,2020About year16Billions of dollars

-Net profit:2018About year1billion yuan,2019About year1.2billion yuan,2020About year2Billions of dollars

1.2 industry background

-Overview of the consulting industry: The consulting industry refers to the service industry that provides customers with professional knowledge, skills or advice, including strategic consulting, management consulting, financial consulting, technical consulting and other segments. The consulting industry is a highly specialized, knowledge-intensive and highly competitive industry, which requires high quality and ability of consultants.

-Development trend of consulting industry: with the transformation and upgrading of China's economy and the intensification of market competition, more and more enterprises need to rely on external professional forces to solve various problems and challenges they face, which promotes the rapid development of the consulting industry.2019The size of the Chinese consulting market reached2327RMB billion, year-on-year growth11.5%, is expected2023The year will reach2593RMB billion, year-on-year growth11.4%. Among them, the management consulting market accounted for the largest proportion, reaching41.6%, followed by the share of the technical consulting market.28.7%。

-Competition pattern of consulting industry: China's consulting market presents a situation where international brands and local brands coexist. International brands are represented by McKinsey, Boston, Bain, etc., mainly serving large enterprises and government agencies, with strong brand effect and professional advantages, but the price is higher and the service scope is narrow; local brands are represented by Huasheng, Shangpu, Boehner, etc., mainly serving small, medium and micro enterprises, it has strong market adaptability and service flexibility, but its brand awareness and professional level are relatively low.

1.3 Key Highlights

-Focus on small and medium-sized enterprises management consulting services, large market space, strong demand, low competitive pressure

-Have an experienced, high professional quality, good service attitude consulting team, able to provide customers with tailor-made solutions

-Have a complete set of consulting methods and tools, which can effectively improve the efficiency and quality of consulting, and reduce consulting costs

-Has multiple success stories and good reputation, high customer loyalty, high repurchase rate, high recommend rate

-Robust business growth, strong profitability, sound financial position, risk control

1.4 main risks

-Unclear industry regulatory policies may affect the legality and standardization of consulting services

-Increasing competition in the industry may affect the price and profit margins of consulting services

-Turnover rate of consultants, which may affect the quality and stability of consulting services

-The effectiveness of consulting services is difficult to quantify and evaluate and may affect client satisfaction and trust

-There are certain uncertainties and risks in consulting services

1.5 investment proposals and programmes

-Investment advice: An investment in Champ is recommended for the following reasons:

-Shangpu is a company focusing on enterprise management consulting services, with a clear market positioning and target customer groups.

-Shangpu has an excellent consulting team and a set of perfect consulting methods and tools, which can provide customers with efficient, high-quality and cost-effective consulting services

-Shangpu has many successful cases and good reputation, high customer loyalty, high repurchase rate and high recommend rate

-The business of Shangpu has stable growth, strong profitability, good financial position and controllable risks.

-Champ has strong development potential and listing possibilities, and the return on investment is expected to be high.

-Investment options: It is recommended to use the discounted cash flow method to value Champ and determine the investment amount and equity ratio based on the valuation results. At the same time, it is recommended to include some risk control clauses in the investment agreement, such as repurchase clauses, exit clauses, and non-competition clauses.