1.Commercial due diligenceDefinition and purpose

Commercial Due Diligence (CDD) refers to the systematic, comprehensive and in-depth investigation and analysis of the business prospect and future development trend of the target company by the professional consulting team after the investor has reached the initial cooperation intention with the target company, so as to verify the rationality and feasibility of the business plan of the target company, evaluate the value and potential of the target company, and identify and control the investment risk, provide support and advice for investment decisions.

The main purposes of commercial due diligence are as follows:

Understand the current situation, trends, opportunities and challenges of the industry and market in which the target company is located, evaluate the market position and competitiveness of the target company, and predict the market share and growth potential of the target company;

Evaluate the target company's business model and profitability, analyze the target company's core competitive strengths and weaknesses, test the target company's business processes and management level, and identify the target company's performance drivers and key success factors;

Verify the financial position and forecast of the target company, verify the authenticity and compliance of the target company's financial data such as revenue, cost, profit, cash flow, assets and liabilities, analyze the financial risk and sensitivity of the target company, and adjust the financial forecast and valuation model of the target company;

Identify the legal risks and compliance of the target company, review the equity structure, contracts, licenses, patents, litigation and other legal documents of the target company, assess the legal liability and potential disputes of the target company, and ensure the legality and compliance of the target company;

Evaluate the strategic fit and synergy of the target company, analyze the strategic objectives and plans of the target company, compare the strategic fit and cultural adaptability of the target company and investors, and predict the synergy potential and value creation space of the target company and investors.

2.Commercial due diligencemethod and process

The main methods of commercial due diligence include the following:

Desktop research: by collecting and analyzing publicly available information and data, such as the target company's official website, annual reports, news, industry reports, research reports of listed companies in the same industry, forums, professional databases, etc., to understand the basic situation and development trends of the target company and its industry;

Interviews: Through face-to-face or telephone interviews with the management, employees, customers, suppliers, competitors, industry experts and other relevant personnel of the target company, to obtain first-hand information and views of the target company's internal and external, in-depth understanding of the target company's business details and operational realities;

Consumer research: conduct a large sample of quantitative surveys or qualitative in-depth interviews with end users or consumers of the target company to understand the quality and popularity of the target company's products or services, the real sales situation of the target company, and the competitive enterprises;

Field visits: conduct field visits to the target company's operations, research and development, production, management, resources, etc., observe the target company's hardware facilities and software environment, verify the authenticity and effectiveness of the target company's assets and business, and discover the target company's advantages and problems.

The commercial due diligence process generally includes the following steps:

Determine the scope and objectives of due diligence: according to the needs and objectives of investors, clarify the key points and difficulties of due diligence, formulate due diligence work plans and timetables, and assign due diligence tasks and responsible persons;

Collect and analyze information and data: collect and organize all aspects of information and data of the target company through the above-mentioned methods, carry out necessary verification and cleaning, use appropriate analysis tools and models, carry out quantitative and qualitative analysis, summarize and summarize the main characteristics and problems of the target company;

Formation of due diligence reports and recommendations: based on the results of the analysis, the formation of due diligence reports, describing the business prospects and future development trends of the target company, assessing the value and potential of the target company, identifying and controlling investment risks, making investment recommendations and opinions, and providing support and basis for investment decisions;

Communication and feedback: submit due diligence reports and suggestions to investors, communicate and discuss with investors, answer investors' questions and concerns, make necessary adjustments and supplements according to investors' feedback, improve due diligence reports and suggestions, and ensure that investors have a clear and comprehensive understanding of the target company.

3.Commercial due diligenceSuccess and failure cases

The following are several successful and failed cases of commercial due diligence, from which we can see the importance and impact of commercial due diligence, and we can also learn from the methods and principles of commercial due diligence to avoid the precautions and misunderstandings of commercial due diligence.

1. Didi Chuxing Acquires Uber China

Didi Chuxing's acquisition of Uber China is a successful business case, showing how to fully evaluate the value and potential of the investor, and how to effectively integrate the resources and capabilities of the investor to achieve investment goals and results.

In August 2016, Didi Chuxing announced the acquisition of Uber China for $7 billion, ending the fierce competition between the two companies in the Chinese market. This is the largest merger and acquisition transaction in the history of China's Internet, and it is also a milestone event in the field of global shared travel.

Prior to the acquisition, Didi Chuxing conducted in-depth commercial due diligence on Uber China, mainly including the following aspects:

Market analysis: Didi Chuxing has conducted a comprehensive analysis of the scale, structure, demand, competition, and policies of China's travel market, predicted the future development trend and potential of China's travel market, and believed that China's travel market still has huge room for growth. Especially in second-and third-tier cities and emerging business areas, such as online car-hailing, ride-hailing, public transportation, bicycles, etc;

Business analysis: Didi Chuxing conducted an in-depth analysis of Uber China's business model, products, services, technology, operations, management, etc., evaluated Uber China's core competitive advantages and disadvantages, and found Uber China's high-end market, The advantages of internationalization and innovation capabilities, as well as the disadvantages in cost control, policy compliance, and user experience;

Financial analysis: Didi Chuxing made a detailed analysis of Uber China's financial situation and forecast, verified the authenticity and rationality of Uber China's financial data such as revenue, cost, profit, cash flow, assets and liabilities, analyzed Uber China's financial risks and sensitivity, and adjusted Uber China's financial forecast and valuation model;

Legal analysis: Didi Chuxing conducted a rigorous analysis of Uber China's legal risks and compliance, reviewed Uber China's equity structure, contracts, licenses, patents, litigation and other legal documents, assessed Uber China's legal liabilities and potential disputes, and ensured Uber China's legality and compliance;

Synergy Analysis: Didi Chuxing conducted a comprehensive analysis of the strategic fit and synergy effect of Uber China, analyzed the strategic objectives and plans of Uber China and Didi Chuxing, compared the strategic matching degree and cultural adaptability of Uber China and Didi Chuxing, and predicted the synergy potential and value creation space of Uber China and Didi Chuxing.

Through commercial due diligence, Didi Chuxing has a clear and comprehensive understanding of Uber China, and believes that the acquisition of Uber China is in line with Didi Chuxing's strategic goals and development plans, and can enhance Didi Chuxing's leadership in the Chinese travel market, enhance Didi Chuxing's competitiveness and profitability, and realize the long-term value of Didi Chuxing.

After the acquisition, Didi Chuxing has effectively integrated Uber China, mainly including the following aspects:

Brand integration: Didi Chuxing retains the brand and logo of Uber China, and regards Uber China as the high-end brand of Didi Chuxing, which enhances the brand image and popularity of Didi Chuxing, and expands Didi Chuxing's user base and market share;

Product integration: Didi Chuxing incorporates Uber China's products and services into Didi Chuxing's platform, providing users with more travel options and a better travel experience. At the same time, Didi Chuxing also integrates Didi Chuxing's products and services. The promotion of services to Uber China's platform provides users with more discounts and convenience;

Technology integration: Didi Chuxing and Uber China share technical resources and capabilities, using Uber China's internationalization and innovation capabilities to improve Didi Chuxing's technical level and research and development capabilities, while using Didi Chuxing's big data and artificial intelligence capabilities to optimize Uber China's technical efficiency and service quality;

Operational integration: Didi Chuxing and Uber China have achieved operational coordination and optimization, using Didi Chuxing's cost control and policy compliance capabilities to reduce Uber China's operating costs and risks, and at the same time, using Uber China's high-end market And internationalization capabilities, improve Didi Chuxing's operating income and profits;

Management integration: Didi Chuxing and Uber China have established effective management mechanisms and communication channels, realized the complementarity and collaboration of management, retained the core management team and employees of Uber China, and cultivated Uber China and Didi Chuxing's cultural integration and identity.

Through effective integration, Didi Chuxing has achieved synergy and value creation with Uber China, enhanced Didi Chuxing's competitive advantage and leadership in the Chinese travel market, and laid a solid foundation for the future development of Didi Chuxing.

Champ Consulting conducts commercial due diligence for a private equity fund.

Shangpu Consulting's business due diligence for a private equity fund is a successful business due diligence case, showing how to provide investors with comprehensive, in-depth and objective business due diligence reports and recommendations through professional consulting teams and methods to help investors make the right investment decisions.

In 2019, Champ Consulting was commissioned by a private equity fund to conduct a commercial due diligence on a medium-sized medical device company to assess the company's business prospects and future trends and to provide support and advice on the private equity fund's investment decisions. The medical device company is mainly engaged in the research and development, production and sales of cardiovascular interventional devices. It has a number of patents and technologies, occupying a certain share of the domestic market, but it also faces fierce competition and policy uncertainty.

Shangpu Consulting has conducted a comprehensive, in-depth and objective commercial due diligence on the medical device company, mainly including the following aspects:

Market analysis: Shangpu Consulting conducted a comprehensive analysis of the scale, structure, demand, competition and policies of China's cardiovascular interventional device market, predicted the future development trend and potential of the cardiovascular interventional device market, and believed that the cardiovascular interventional device market still had a large room for growth, especially in second-and third-tier cities and rural areas, but it also faced challenges from domestic and foreign competitors, as well as changes in policy and the strengthening of regulation;

Business analysis: Shangpu Consulting conducted an in-depth analysis of the business model, products, services, technology, operation and management of the medical device company, and evaluated the disadvantages in terms of market coverage, cost control and personnel training;

Financial analysis: Shangpu Consulting conducted a detailed analysis of the financial situation and forecast of the medical device company, verified the authenticity and rationality of the financial data such as income, cost, profit, cash flow, assets and liabilities of the medical device company, analyzed the financial risk and sensitivity of the medical device company, and adjusted the financial forecast and valuation model of the medical device company;

Legal analysis: Champu Consulting conducted a rigorous analysis of the legal risks and compliance of the medical device company, reviewed the equity structure, contracts, licenses, patents, litigation and other legal documents of the medical device company, evaluated the legal liabilities and potential disputes of the medical device company, and ensured the legality and compliance of the medical device company;

Synergy analysis: Champu Consulting conducted a comprehensive analysis of the strategic fit and synergy of the medical device company, analyzed the strategic goals and plans of the medical device company, and compared the strategic matching degree of the medical device company and the private equity fund. Cultural adaptability predicts the synergy potential and value creation space between the medical device company and the private equity fund.

Through commercial due diligence, Shangpu Consulting has a clear and comprehensive understanding of the medical device company. It believes that the medical device company has high investment value and potential, but there are also certain investment risks and challenges. It provides private equity funds with the following Investment advice and opinions:

The private equity fund may consider making a minority equity investment in the medical device company in order to obtain the future income and growth of the medical device company, while avoiding excessive interference and influence on the operation and management of the medical device company;

Private equity funds can help the medical device company expand product categories and market coverage, improve product quality and technological innovation, reduce costs and risks, and enhance competitiveness and profitability by providing capital, technology, talents, channels and other resources and capabilities;

Private equity funds can establish a good cooperative relationship and communication mechanism with the medical device company, achieve strategic and cultural integration and coordination, exert synergy and value creation, and provide convenience and conditions for future exit or mergers and acquisitions.

Through professional consulting teams and methods, Champ Consulting provides private equity funds with comprehensive, in-depth and objective commercial due diligence reports and recommendations, helping private equity funds make correct investment decisions and achieve investment goals and results.

4.Commercial due diligencePrinciples and considerations

From the above success and failure cases, we can summarize the following principles and precautions of commercial due diligence, in order to provide useful reference and enlightenment for investors.

(I) the principle of commercial due diligence

The principles of commercial due diligence include the following:

Comprehensiveness: commercial due diligence should cover and evaluate all aspects of the target company comprehensively, without omitting or neglecting any important area or issue, and form a complete and systematic framework and list of commercial due diligence to ensure the adequacy and appropriateness of the content and scope of commercial due diligence;

In-depth: commercial due diligence should conduct in-depth investigation and analysis of all aspects of the target company, not only at the superficial or general level, but also use professional analysis tools and models to conduct quantitative and qualitative analysis, excavate the core characteristics and problems of the target company, and ensure the efficiency and effectiveness of the quality and depth of commercial due diligence;

Objectivity: commercial due diligence should objectively evaluate and verify all aspects of the target company, and should not be subject to subjective bias or influence. It should collect and sort out the internal and external first-hand information and data of the target company, carry out necessary verification and cleaning, avoid distortion and misleading information, and ensure the authenticity and accuracy of the data and results of commercial due diligence;

Professionalism: Commercial due diligence should be carried out by professional consulting teams and methods, not by non-professional personnel or methods. According to the characteristics and needs of the target company's industry and market, select appropriate consulting teams and methods, and use the consulting team The professional knowledge and experience of the team improve the efficiency and quality of commercial due diligence, and ensure the professionalism and reliability of commercial due diligence.

Considerations (II) Commercial due diligence

The considerations of commercial due diligence mainly include the following points:

Do not blindly follow or imitate the behavior of other investors, according to their own investment objectives and strategies, the target company to carry out independent commercial due diligence, to avoid incomplete or inaccurate information, resulting in investment decision-making mistakes;

Do not overestimate or underestimate certain indicators or factors of the target company, and make a comprehensive and balanced assessment of the target company to avoid deviations in investment decisions due to uneven or inconsistent information;

Do not ignore or ignore the problems and risks of the target company, and conduct full and detailed verification and analysis of the target company to avoid the risk of investment decisions due to untrue or non-compliance of information;

Do not rely solely on the target company's information and data, to combine industry and market information and data, comparison and reference, to avoid because the information is not comprehensive or objective, leading to misjudgment of investment decisions;

Don't just focus on the current situation and past of the target company, predict the future and potential of the target company, conduct dynamic and forward-looking analysis, and avoid lagging investment decisions due to untimely or unupdated information.

5. epilogue

Business due diligence is an indispensable part of the investment decision-making process, which provides investors with the basis for value judgment and risk control through a comprehensive, in-depth and objective assessment of the target company's market, competition, business, finance, law and other aspects.