1. what is investment due diligence?

Investment due diligence (Due Diligence), also known as due diligence or due diligence, refers to the investor's comprehensive, in-depth and objective investigation and evaluation of the target enterprise or project before making investment decisions, in order to obtain true, complete and accurate information about the target enterprise or project, reveal its potential risks and values, and provide a basis for investment decisions.

Investment due diligence is an important means of investment risk management. Through investment due diligence, investors can effectively identify, evaluate and control various risks of target enterprises or projects, including financial risks, legal risks, market risks, technical risks, management risks, Environmental risks, etc., so as to avoid buying "mess" and protect their legitimate rights and interests.

Why should 2. invest in due diligence?

The purpose of investment due diligence is to help investors make the right investment decisions and maximize investment returns. Specifically, through investment due diligence, investors can achieve the following objectives:

（1) Verify the authenticity and legality of the target enterprise or project. By verifying the basic information, organizational structure, equity structure, registration, licensing documents, contractual agreements, etc. of the target enterprise or project, it is confirmed whether it is false, illegal or irregular to avoid fraud or breach of contract.

（2) Assess the financial and operating conditions of the target enterprise or project. Through the analysis of the financial statements, audit reports, tax reports, debt situation, accounts receivable and payable, inventory situation and other aspects of the target enterprise or project, to understand whether there are financial fraud, losses, debt crisis and other issues, to determine whether it has good profitability and solvency.

（3) Assess the market prospects and competitive advantages of the target enterprise or project. By studying the market size, growth rate, competition pattern, policies and regulations of the target enterprise or project industry, we can understand whether it has a broad market space and development potential. At the same time, through the evaluation of the product or service quality, technical level, brand influence, customer groups and other aspects of the target enterprise or project, to understand whether it has obvious competitive advantage and core competitiveness.

（4) Assess the risk factors and countermeasures of the target enterprise or project. Through the investigation of the legal proceedings, intellectual property disputes, environmental pollution, safety accidents, employee turnover, supplier changes and other aspects that the target enterprise or project may face, to understand whether there are significant risks and emergency plans, and to determine whether it has good risk resistance and crisis management capabilities.

（5) Determine the reasonable valuation and return on investment of the target enterprise or project. Through the analysis of the historical performance, future forecast and industry comparison of the target enterprise or project, the reasonable valuation range of the target enterprise or project, as well as the expected rate of return and investment payback period of investors, are calculated by using the method of price-earnings ratio, price-to-book ratio and cash flow discount method, which provides the basis for investment pricing and negotiation.

How do 3. invest due diligence?

The content and methodology of investment due diligence varies according to the type of investment, the characteristics of the target enterprise or project and the needs of the investor, but can generally be divided into the following steps:

（1) Determine the scope and focus of investment due diligence. Based on their own investment strategies and objectives, as well as the basic situation of the target enterprise or project, investors identify the main areas and key issues that require due diligence, such as financial due diligence, legal due diligence, market due diligence, technical due diligence, etc., and formulate corresponding due diligence plans and timetables.

（2) Set up an investment due diligence team and assign tasks. According to the scope and focus of due diligence, investors select personnel with relevant professional knowledge and experience to form a due diligence team, and clarify their respective responsibilities and authorities. At the same time, investors can hire third-party professional institutions such as accounting firms, law firms, consulting companies, etc. to assist in due diligence work.

（3) Collect and analyze information about the target enterprise or project. The due diligence team collects and analyzes all aspects of information of the target enterprise or project by presenting written or oral inquiries to the target enterprise or project, asking for and reviewing all kinds of documents provided by the target enterprise or project, such as financial statements, contract agreements, licenses, audit reports, etc., and conducting on-site inspections, on-site visits, telephone interviews and other methods as needed to verify its authenticity and legality, assess its financial and operating conditions, assess its market prospects and competitive advantages, assess its risk factors and countermeasures, and determine its reasonable valuation and return on investment.

（4) Write and submit an investment due diligence report. According to the information collected and analyzed, the due diligence team shall write and submit the investment due diligence report, which shall include the following contents: basic introduction of the target enterprise or project; Main findings and conclusions of due diligence in various fields; Main risks and problems existing in the target enterprise or project; Reasonable valuation range and investment return forecast of the target enterprise or project; Suggestions and opinions on investment decision. The investment due diligence report should objectively, truthfully, completely and accurately reflect all aspects of the target enterprise or project and provide valuable reference information for investors.

What are the considerations for 4. investment due diligence?

Investment due diligence is a complex and professional task that requires high attention and careful implementation by investors and due diligence teams to avoid the following common mistakes and problems:

（1) ignore the importance of investment due diligence. Some investors believe that investment due diligence is a form rather than a substance, just to meet regulatory or compliance requirements, or just to obtain some superficial or basic information, and do not pay attention to in-depth and detailed investigation and evaluation, which leads to the target insufficient understanding of the real situation and potential risks of the enterprise or project, and increases the possibility of investment failure.

（2) Lack of plans and methods for investment due diligence. Some investors do not have a clear goal and scope of investment due diligence, do not formulate a reasonable due diligence plan and timetable, do not choose the appropriate due diligence team and third-party institutions, and do not adopt effective due diligence methods and tools. as a result, the efficiency and quality of investment due diligence are low, comprehensive and accurate information cannot be obtained, which affects the correctness of investment decisions.

（3) Relies excessively on the information provided by the target enterprise or project. Some investors simply accept and believe the information provided by the target enterprise or project when making investment due diligence, without independent verification and verification, and without cross-comparison and analysis. as a result, the false, exaggerated or concealed situation of the target enterprise or project cannot be found, increasing the risk of fraud or default.

（4) Ignore the problems and risks found in investment due diligence. When some investors make investment due diligence, even if they find some problems and risks existing in the target enterprise or project, they do not raise questions and ask for explanations to the target enterprise or project in time, do not take corresponding measures to avoid or resolve them, and do not adjust the valuation and return of the target enterprise or project accordingly, which leads to being too optimistic or blind to the target enterprise or project, increase the possibility of investment losses.

5. epilogue

Investment due diligence is an indispensable work for investors before making investment decisions. Through investment due diligence, investors can effectively avoid buying "mess" and maximize investment returns. Therefore, investors should attach great importance to and earnestly implement the investment due diligence work. At the same time, they can also use the professional services provided by professional institutions such as Shangpu Consulting to improve the efficiency and quality of investment due diligence.

As one of China's well-known independent third-party research and investment and financing consulting institutions, Shangpu Consulting has a wealth of industry research, market research, investment and financing consulting,IPOProfessional experience and customer resources in the field of listing consulting, while providing customers with special market research services, feasibility study reports, business plans and other segmented consulting services, it also provides customers with professional investment due diligence services to help customers make a comprehensive, in-depth and objective investigation and evaluation of the target enterprise or project before making investment decisions, revealing its potential risks and values, provide a basis for investment decisions.

The following are some specific cases of Champ Consulting in the area of investment due diligence:

（1) An internationally renowned private equity fund has invested in a new energy automobile company in China. Shangpu Consulting provides a full range of investment due diligence services for the fund, including financial due diligence, legal due diligence, market due diligence, technical due diligence, etc., through the financial status, legal compliance, market prospects, and technology of the target company In-depth analysis of innovation capabilities and other aspects helped the fund evaluate the true value and potential risks of the target company, and provided strong support for its investment decisions.

（2) A well-known domestic listed company has made a merger and acquisition of a medical device company in China. Shangpu Consulting provides professional M & A due diligence services for the listed company, including financial due diligence, legal due diligence, market due diligence, technical due diligence, etc. Through the systematic evaluation of the financial status, legal compliance, market competitiveness, technical advantages and other aspects of the target company, it helps the listed company determine the reasonable valuation range and M & A plan of the target company, it provides a guarantee for the successful completion of its M & A transactions.

（3) A well-known foreign food and beverage company makes market entry adjustments to a Chinese dairy company. Shangpu Consulting provides professional market entry due diligence services for the food and beverage company, including industry analysis, market analysis, competition analysis, consumer analysis, etc., through in-depth research on the market scale, growth rate, competition pattern, policies and regulations of China's dairy industry, and detailed evaluation of the product quality, brand influence, channel model and other aspects of the target enterprise, helped the food and beverage company formulate appropriate market entry strategy and cooperation model, which provided guidance for its success in the Chinese market.