Business investment due diligence refers to the process of conducting a comprehensive, in-depth and objective evaluation and analysis of the target enterprise or project before making a business investment decision, in order to obtain its true, accurate and complete information, judge its value, risk and potential, and provide investors with decision-making basis and advice. From the perspective of consulting firms, this paper introduces a framework and four dimensions of business investment due diligence, namely, market dimension, competition dimension, financial dimension and legal dimension, and shows the role and value of consulting firms in business investment due diligence, combined with the specific cases of Shangpu consulting service clients.

Business investment refers to the investment of funds in a particular field or project within a certain period of time for the purpose of obtaining income. Business investment involves multiple stakeholders, such as investors, invested enterprises or projects, intermediaries, etc., so it is necessary to conduct adequate investigation and evaluation before investment to reduce risks and improve returns. This is what business investment due diligence is all about.

Business investment due diligence is a complex and professional job that requires extensive industry knowledge, market insight, data analysis, financial auditing, and legal compliance capabilities. Therefore, many investors will choose to entrust professional consulting companies to carry out business investment due diligence, in order to obtain more comprehensive, in-depth and objective information and advice. As a third-party independent organization, consulting companies can use their professional teams, rich resources, mature methods and rigorous processes to provide investors with high-quality business investment due diligence services.

So, how do consulting firms conduct business investment due diligence? This article will introduce a framework and four dimensions of business investment due diligence from the perspective of consulting firms, and show the role and value of consulting firms in business investment due diligence in the light of the specific cases of Shangpu consulting service clients.

a framework

A complete business investment due diligence process can be divided into the following steps:

Determine objectives: clarify the basic information of the investigated object (enterprise or project), such as name, address, scale, main business, etc.; clarify the purpose of the investigation (such as mergers and acquisitions, cooperation, equity participation, etc.); clarify the scope of the investigation (such as market, competition, Finance, law, etc.); clarify the investigation requirements (such as time, budget, report format, etc.).

Develop a plan: determine survey methods based on objectives (e. g., document review, data analysis, interview visits, etc.); allocate survey resources (e. g., personnel, equipment, costs, etc.); develop survey schedules (e. g., milestones, nodes, etc.); develop risk responses (e. g., alternatives, contingency plans, etc.).

Execute investigation: carry out investigation activities according to the plan, collect, organize, analyze and verify all kinds of information, find problems, explore opportunities, assess risks, predict trends, and form preliminary conclusions and suggestions.

Output report: write a due diligence report based on the survey results, including background introduction, survey methods, survey content, survey conclusions, survey recommendations, etc., presented in the form of text, charts, attachments, etc., to ensure the completeness, accuracy, objectivity and readability of the report.

Provide support: submit due diligence reports to investors, and provide further explanations, explanations, supplements and other support services based on investors' feedback and needs to assist investors in decision-making and execution.

four dimensions

A comprehensive business investment due diligence content can be divided into the following four dimensions:

Market dimension: mainly evaluate the market environment in which the respondents are located, including market size, market growth, market structure, market demand, market distribution, etc., in order to judge the market potential and market position of the respondents.

Competitive dimension: the main assessment of the competitive pressure faced by the respondents, including the number of competitors, size, products./Services, Strategies, Benefits/disadvantages and other aspects, in order to determine the competitive advantage and competitive strategy of the respondents.

Financial dimensions: the main assessment of the financial situation of the subject, including the authenticity, integrity and compliance of the financial statements, the level and trend of financial indicators, the type and degree of financial risk, etc., to determine the financial value and financial soundness of the subject.

Legal dimensions: mainly assess the legal compliance of the subject, including the establishment and change of the company, the shareholding structure and change, the major contracts and disputes, the intellectual property rights and infringement, the tax and policy situation, etc., in order to determine the legal risks and legal liabilities of the subject.

a case

To better illustrate the role and value of consulting firms in business investment due diligence, we will analyze a specific case study of a Champ Consulting Services client. This case is a business investment due diligence service provided by Shangpu Consulting for a well-known domestic education group. The group plans to acquire a direct store of an early childhood education brand and entrust Shangpu Consulting to carry out comprehensive and in-depth business investment due diligence.

Market dimension

Shangpu Consulting first conducted a macro analysis of the early education industry, using authoritative data sources such as the National Bureau of Statistics and the Chinese Society of Education to evaluate the development history, policy environment, market size, and market growth of the early education industry. The results show that the early education industry is a rapidly developing emerging industry, encouraged and supported by national policies, and the market size has changed from2013of the year300Billions of dollars grew2020of the year1200billion yuan, with a compound annual growth rate19.5%, is expected2025The year will reach2500Billions of dollars. The early education industry has huge market potential and development space.

Then, Shangpu Consulting conducted a micro-analysis of the early education industry, using Shangpu Consulting's own early education industry database to assess the market structure, market demand, market distribution and other aspects of the early education industry. The results show that the early education industry is a highly dispersed industry, with thousands of early education institutions of different sizes, types and positioning, among which chain brands dominate the market.60%above share. The market demand of early education industry mainly comes from0-6Children and their parents, affected by the population structure, income level, consumption concept and other factors, show the characteristics of diversification, individualization and high quality. The market distribution of the early childhood education industry is mainly concentrated in first-tier and second-tier cities, occupying the market.80%above share, but third-tier and fourth-tier cities also have more room for growth.

Finally, Shangpu Consulting conducted a detailed analysis of the early education brand to which the respondents belonged, and evaluated the brand's market positioning, market share, market satisfaction, and market loyalty by using Shangpu Consulting's own brand evaluation model. The results show that the brand is a mid-to-high-end early education brand, featuring music and art, with approximately200Home direct stores and franchise stores, covering the whole country20provinces and50cities, with a market share of approximately2%, market satisfaction is approximately85%, market loyalty is approximately75%. The brand has a certain popularity and influence in the early education industry.

Through the analysis of market dimensions, Champ Consulting provides investors with the following conclusions and recommendations:

Early education industry is a high-speed development, high potential, high competition industry, investors should be fully aware of its opportunities and challenges.

The early education brand to which the respondents belong is a high-end, characteristic and large-scale brand, which has certain advantages and status in the early education industry.

When acquiring the brand, investors should pay attention to factors such as its fit with their own strategy, its match with the target market, and its differentiation from competitors.

competitive dimension

Shangpu Consulting then conducted a competitive analysis of the early education industry, using its own competitive intelligence system to assess the competitive landscape, competitors, and competitive strategies of the early education industry. The results show that the early education industry is a red sea market, the competition is very fierce, there are the following types of competitors:

Direct competitor: refers to the product with the brand to which the subject belongs./Other early education brands with high similarity and overlap in service, price, channel, region, etc. For example:ABCEarly Music Education,XYZArt early education, etc.

Indirect competitor: Refers to the product with the brand to which the subject belongs./Services, prices, channels, regions and other aspects have a low degree of similarity and overlap, but still be able to meet some of the needs of other early education institutions. For example: kindergarten, parent-child paradise.

Potential competitors: refers to other enterprises or institutions that have not yet entered the early education industry, but have strong resources, capabilities, willingness and possibilities. For example: a large education group, a well-known Internet company, etc.

Then, Champ Consulting conducted an in-depth analysis of the main direct competitors of the brands to which the respondents belonged, and evaluated their products using Champ Consulting's own competitive evaluation model./The advantages and disadvantages of services, prices, channels, regions, etc., as well as the competitive strategies and effects they have adopted. The results show that the brands to which the respondents belong have the following characteristics among their direct competitors:

Products/Services: The brand features music and art, providing diversified, high quality, and high value-added early education courses and activities to meet the needs of children and their parents of different ages, different interests, and different learning goals. The brand in the product/Services have strong advantages and differentiation.

In terms of price: The brand is positioned in the middle and high-end market, and the prices of its courses and activities are relatively high, but they are also in line with its products/service value and brand image. The brand has a certain flexibility and bargaining power in terms of price.

Channel: the brand mainly through direct stores and franchise stores to expand the market, but also the use of online platforms and social media to promote and promote. The brand has a wide coverage and high visibility in terms of channels.

Regional: The brand is mainly concentrated in first-and second-tier cities, occupying the market.80%above share, but there is still much room for growth in third-and fourth-tier cities. The brand has a strong market share and large market potential in the region.

Finally, Champ Consulting summarized and analyzed the competitive strategies of the brands to which the respondents belonged, and found that the brand mainly adopted the following competitive strategies:

Product innovation strategy: The brand continuously develops new early education courses and activities according to market demand and educational concept to improve products/Quality and diversity of services to enhance the product/attractiveness and competitiveness of the service.

Brand building strategy: By creating an early education image featuring music and art, the brand has established a brand positioning and brand identification that is different from other early education brands, and has enhanced the brand's popularity and reputation.

Channel expansion strategy: The brand has rapidly expanded its market coverage by combining direct stores and franchise stores. At the same time, it has also increased the interaction and communication with customers through online platforms and social media, and improved the channel. Efficiency and effectiveness.

Regional differentiation strategy: The brand has developed different products according to the market characteristics and customer needs of different regions./Services, prices, channels and other aspects of the strategy to adapt to the market environment and competitive conditions in different regions.

Through the analysis of the competitive dimension, Champ Consulting provides investors with the following conclusions and recommendations:

The early education industry is a Red Sea market with fierce competition. Investors should fully understand the types, characteristics and strategies of their competitors.

The brands of the respondents have strong product innovation capabilities, brand building capabilities, channel expansion capabilities and regional differentiation capabilities among direct competitors, and have strong competitive advantages and competitiveness in the early education industry.

When acquiring the brand, investors should pay attention to the degree of differentiation from direct competitors, the degree of substitution with indirect competitors, and the degree of threat with potential competitors.

Financial dimensions

Champ Consulting then conducted an audit analysis of the financial situation of the respondents, using Champ Consulting's own financial audit system to assess the financial statements, financial indicators, financial risks and other aspects of the respondents. The results show that the financial situation of the respondents is as follows:

In terms of financial statements: Champ Consulting provided to the respondents.2018Year2020The financial statements were reviewed and verified in detail and found to be true, complete and compliant, in compliance with Chinese accounting standards and national tax regulations, and no material errors or false bookkeeping were found.

In terms of financial indicators: Champ Consulting calculated and analyzed the main financial indicators of the respondents and found that their financial indicators had a good level and stable trend, reflecting their good operating performance and financial position.

Financial risk: Champ Consulting identified and assessed the possible financial risks of the respondents and found that their financial risks were low, including the following types:

Market risk: refers to the risk of fluctuations or decline in the operating income and net profit of the subject due to changes in the market environment. The extent of this risk depends on changes in market demand, market competition, market policy and other factors.

Financial cost risk: the risk of an increase or fluctuation in the financial cost of the subject due to changes in the level and structure of the subject's liabilities. The extent of this risk depends on changes in the size of the liability, the maturity of the liability, the interest rate on the liability, etc.

Tax risk: refers to the risk that the tax burden of the subject under investigation will increase or fluctuate, or be subject to tax inspection or punishment due to the unreasonable or non-compliance of the tax planning and tax declaration of the subject under investigation. The extent of this risk depends on changes in tax policy, tax regulation, tax compliance and other factors.

Through an analysis of the financial dimensions, Champ Consulting provides investors with the following conclusions and recommendations:

The financial statements of the respondents are authentic, complete and compliant, reflecting their true, accurate and complete financial position and can be used as a basis for investment decisions.

The financial indicators of the respondents have a good level and a stable trend, reflecting their good business performance and financial position, which can be used as an assessment of the value of the investment.

The financial risk of the subject is low, including market risk, financial cost risk and tax risk, which can be reduced or avoided through effective risk management and control measures.

legal dimension

Finally, Shangpu Consulting inspected and analyzed the legal compliance of the investigated objects, and evaluated the establishment and change of the company, equity structure and change, major contracts and disputes, intellectual property rights and infringement, taxation and policy, etc. of the investigated objects by using its own legal review system. The results show that the legal compliance of the respondents is as follows:

Company establishment and change: Shangpu Consulting reviewed and verified the company's articles of association, business license, organization code certificate, tax registration certificate and other relevant documents provided by the respondents, and found that its company establishment and change were in line with the requirements of China's company law and relevant laws and regulations, and did not find any illegal or irregular situation.

Shareholding structure and changes: Shangpu Consulting reviewed and verified the register of shareholders, minutes of shareholders' meetings, equity transfer agreements and other relevant documents provided by the respondents, and found that its shareholding structure and changes were in compliance with the requirements of the Chinese Company Law and relevant regulations, and did not find any violations or irregularities.

Major contracts and disputes: Shangpu Consulting reviewed and verified the major contracts signed with suppliers, customers, employees, governments and other related parties provided by the respondents, and found that their major contracts were in line with the requirements of the Chinese Contract Law and relevant laws and regulations, and did not find any breach of contract or disputes. At the same time, Shangpu Consulting also found that it was not involved in any litigation or arbitration by consulting public information sources such as China Judgment Document Network and China Enforcement Information Disclosure Network.

Intellectual property rights and infringement: Shangpu Consulting reviewed and verified the intellectual property rights certificates related to their brands, trademarks, patents, copyrights, etc. provided by the investigated subjects, and found that their intellectual property rights comply with the requirements of China's Intellectual Property Law and relevant regulations. No expired or invalid situation was found. At the same time, Shangpu Consulting also found that it did not involve any intellectual property infringement or disputes by inquiring public information sources such as China Trademark Network and China Patent Network.

Tax and policy situation: Shangpu Consulting conducted research and analysis on the tax policies provided by the respondents related to their industries and regions, and found that their tax policies were in line with the requirements of Chinese tax laws and relevant laws and regulations, and did not find any adverse or changed circumstances. At the same time, Shangpu Consulting also reviewed and verified the vouchers provided by the respondents related to the various taxes and fees they paid, and found that their tax declarations and payments met the requirements of China's tax laws and relevant regulations, and did not find any arrears or evasion.

Through an analysis of the legal dimensions, Champ Consulting provides investors with the following conclusions and recommendations:

The high legal compliance of the respondents reflects their good legal awareness and legal risk management ability, which can be used as a guarantee of investment security.

The legal compliance of the investigated objects involves the establishment and change of the company, the ownership structure and change, major contracts and disputes, intellectual property rights and infringement, taxation and policies, etc. When purchasing the brand, investors should pay attention to the fit with their own legal situation, the adaptability with the target legal environment, and the ability to deal with potential legal problems.

Summary

From the perspective of consulting firms, this paper introduces a framework and four dimensions of business investment due diligence, namely, market dimension, competition dimension, financial dimension and legal dimension, and shows the role and value of consulting firms in business investment due diligence, combined with the specific cases of Shangpu consulting service clients. Through a comprehensive and in-depth business investment in the early childhood education brands to which the respondents belong, Champ Consulting provides investors with the following overall conclusions and recommendations:

The brand is a mid-to-high-end early childhood brand, featuring music and art, with approximately200Home direct stores and franchise stores, covering the whole country20provinces and50The city has a certain popularity and influence in the early education industry.

The brand has strong market potential and market position in the early education industry, strong competitive advantage and competitiveness, high financial value and financial soundness, high legal compliance and legal security.

When acquiring the brand, investors should pay attention to factors such as its fit with their own strategy, match with the target market, degree of differentiation with competitors, and fit with their own legal situation, and formulate reasonable investment plans and operational strategies according to market demand and competitive conditions.