1. what is commercial due diligence

Commercial Due Diligence (CDD) refers to the investigation of the business model, internal and external environment and conditions of business development of the target company or project by a professional management consulting team from outside and inside after the investor has reached an initial cooperation intention with the target company or project, and the evaluation and analysis of the key factors for the enterprise to achieve its development plan to support investment decisions and transaction negotiations. The purpose of commercial due diligence is to verify the core values of the target company or project, identify its potential opportunities and risks, assess its future profitability and growth potential, and determine reasonable transaction prices and terms.

Commercial due diligence is different from the risk assessment of financial due diligence and legal due diligence, which is the value assessment of the target company or project and needs to verify and revise its business plan and financial forecast to reflect its true business conditions and market prospects. Commercial due diligence usually needs to be carried out simultaneously or in preference to financial due diligence and legal due diligence, providing an important basis for investment valuation and transaction structure.

The importance of commercial due diligence is that it can help investors avoid blind investment decisions, reduce the risk of investment failure, improve the return on investment, enhance the trust and cooperation between investors and target companies or projects, and promote post-investment integration and management.

Key elements of 2. commercial due diligence

The main content of commercial due diligence can be divided into the following five aspects:

1. Macro-environmental analysis

Macro-environmental analysis refers to the external environmental factors that may indirectly affect the business activities of enterprises, mainly covering economic development trends and laws and regulations, population, politics, lifestyle changes, technological innovation, interest rates and foreign exchange rates, and crude oil prices. These factors are difficult to be changed by individual enterprises or industries, and have a profound impact on the overall market and economy. The PEST analysis model is often used when analyzing the macro environment, I .e. the four dimensions of politics (Political), economy (Economic), society (Social) and technology (Technological).

The purpose of macro-environmental analysis is to understand whether the market environment in which the target company or project is located is conducive to its development, whether there are adverse factors or potential threats, and how to respond to and use these factors or threats.

2. Market analysis

Market analysis refers to the past, present and future analysis of the market involved in the target company or project, including market size, market growth rate, market structure, market demand, market segmentation, market trends, market drivers, market barriers, market opportunities and market risks. Market analysis needs to consider the following issues:

Can the market continue to grow (shrink)?

What are the drivers (factors) of market growth?

What factors will change the existing trend?

Will the market (customer) demand change?

The purpose of market analysis is to understand the market potential and competitiveness of the target company or project, whether there is sufficient market space and demand to support its development, whether there is a clear market positioning and advantages, and whether it can seize market opportunities and deal with market risks.

3. Competitive environment analysis

Competitive environment analysis refers to the analysis of existing and potential competitors of a target company or project, including the number, type, size, product or service, market share, cost structure, profitability, development strategy, strengths and weaknesses of competitors. The competitive environment analysis needs to consider the following issues:

What are the direct and indirect competitors of the target company or project?

What are your competitors' business models and competitive strategies?

What are the strengths and weaknesses of competitors?

What are the latest developments and future plans of competitors?

The purpose of competitive environment analysis is to understand the relative position and competitive advantage of the target company or project in the market, whether it can resist the threats and challenges of competitors, and whether it can learn from the experience and opportunities of competitors.

4. Business Process Analysis

Business process analysis is to decompose the basic activities of an enterprise according to its functions and study the analysis model of the internal links of the enterprise, including research and development, procurement, production, sales, logistics, after-sales and so on. Business process analysis needs to consider the following issues:

What is the business process of the enterprise?

Are business processes efficient and optimized?

Does the business process of the enterprise meet the needs and expectations of customers?

Is there room and potential for improvement and innovation in the business processes of the enterprise?

The purpose of business process analysis is to understand the core competitiveness and value creation ability of the target company or project, whether there is efficient and optimized operation management, whether there is the ability and willingness to continuously improve and innovate, and whether there are strategies and measures to improve customer satisfaction and loyalty.

5. Enterprise Infrastructure Analysis

Enterprise infrastructure analysis refers to the analysis of human resources, financial management, information technology, legal compliance, risk control and other aspects of the target company or project, mainly including organizational structure, personnel quality, personnel incentive, financial status, financial norms, information systems, information security, legal affairs, legal risk, risk management and so on. Enterprise infrastructure analysis needs to consider the following issues:

Is the organization structure reasonable and effective?

Is the company's human resources adequate and excellent?

Is the incentive mechanism reasonable and effective?

Is the financial position of the enterprise healthy and stable?

Is the financial management of the enterprise standardized and transparent?

Is the enterprise's information technology advanced and reliable?

Is there any guarantee and measure for the information security of the enterprise?

Is the legal affairs of the enterprise compliant and perfect?

Is the legal risk of the enterprise controllable and preventive?

Is the risk control of the enterprise effective and timely?

The purpose of enterprise infrastructure analysis is to understand the quality and level of internal management and operation of the target company or project, whether there are sound and perfect support systems and mechanisms, whether there are the ability and measures to avoid and deal with various internal and external risks, and whether there are behaviors and performances that comply with laws, regulations and industry standards.

Presentation of 3. commercial due diligence

The presentation of commercial due diligence should be customized and optimized for different audiences and purposes to achieve the best communication and persuasion. In general, commercial due diligence can be presented in the following forms:

1. Report

The report is the most common and basic presentation of business due diligence and is a detailed and systematic record and summary of the process and results of business due diligence. The report should include the following sections:

[Description]: An overview of the background, purpose, methodology, conclusions and recommendations of business due diligence, highlighting the main findings and perspectives of business due diligence, providing the reader with a quick and comprehensive overview.

[Contents]: According to the main content of commercial due diligence, conduct in-depth and comprehensive analysis and evaluation in chapters, provide sufficient and powerful data and evidence, show the logic and reasons of commercial due diligence, explain the views and judgments of commercial due diligence, and give conclusions and suggestions of commercial due diligence.

Appendix: Provide information on data sources, methods, tools, models, assumptions, restrictions, etc. used in commercial due diligence to increase the credibility and transparency of commercial due diligence.

The format of the report should be clear, logical, professional and persuasive, using concise, accurate and objective language, avoiding vague, subjective and emotional words, and using appropriate headings, paragraphs, lists, tables, charts and other elements to improve the readability and visibility of the report. The length of the report should be based on the complexity and depth of the commercial due diligence, typically between 20 and 50 pages.

2. Presentation

Presentations are another common presentation of business due diligence, a brief and refined presentation and presentation of the process and results of business due diligence. The content of the presentation should include the following sections:

Cover: Shows information such as the theme of the business due diligence, the name of the target company or project, the name of the investor, the name of the management consulting team and the date of the business due diligence to attract the attention and interest of the reader.

Table of Contents: List the main chapters and contents of the presentation to facilitate the reader's navigation and understanding.

[Contents]: According to the main content of business due diligence, brief and focused presentations and speeches are made in chapters, highlighting the core findings and viewpoints of business due diligence, and using elements such as charts, images, and illustrations to enhance the visual effect and influence of the presentation.

Conclusion: Summarize the conclusions and suggestions of commercial due diligence, emphasize the value and significance of commercial due diligence, answer readers' questions and doubts, and thank readers for their attention and support.

The format of the presentation should be concise, clear, professional and attractive, using direct, clear and powerful language, avoiding long, complex and ineffective words, and using appropriate colors, fonts, layouts, animations and other elements to improve the presentation Aesthetic and professional. The length of the presentation should be based on the importance and difficulty of commercial due diligence, usually between 10 and 30 pages.

3. Data table

Data tables are an auxiliary presentation of business due diligence and are the collation and aggregation of the data and information used in business due diligence. The contents of the data table should include the following sections:

Title: Describe the subject, source, date and other information of the data table for the reader's identification and reference.

Header: Describe the meaning and units of the rows and columns of the data table for the reader's understanding and analysis.

Data: Fill in the specific values of the data table for the reader to view and calculate.

Note: Explain the sources, methods, assumptions, limitations, etc. of the data in the data table to increase the credibility and transparency of the data table.

The format of the data table should be standardized, unified, professional and useful, use appropriate numbers, decimals, percentages, currencies and other symbols, avoid the use of errors, inconsistencies and meaningless symbols, and use appropriate alignment, borders, colors, formulas and other elements to improve the accuracy and efficiency of the data table. The length of the data table should depend on the amount and complexity of the data, usually between 1-10 pages.

4. Charts

A chart is an auxiliary presentation of business due diligence, a visualization and presentation of the data and information used in business due diligence. A chart is an auxiliary presentation of business due diligence, a visualization and presentation of the data and information used in business due diligence. The contents of the chart should include the following sections:

Title: Describe the subject, source, date and other information of the chart for the reader's identification and reference.

Legend: Explain the meaning of the different colors, shapes, symbols, etc. of the chart for the reader's understanding and analysis.

Data: Shows the specific values of the chart for the reader to view and compare.

Note: Describe the source, method, assumptions, limitations, and other information about the data in the chart to increase the credibility and transparency of the chart.

The format of the chart should be beautiful, clear, professional and useful, use appropriate types, sizes, proportions, colors, fonts and other elements, avoid the use of complex, confusing and meaningless elements, use appropriate titles, labels, grids, axes and other elements to improve the readability and visibility of the chart. The number of charts should be based on the importance and relevance of the data, generally between 1 and 10.

4. Champ Consulting's commercial due diligence services and cases

Shangpu Consulting (Shangpu Consulting) is a professional management consulting company, founded in 2008, headquartered in Beijing, with more than 200 senior consultants and industry experts to provide clients with strategic planning, market research, business due diligence, investment consulting, M & A integration, organizational change and other services. Shangpu Consulting's clients cover finance, energy, manufacturing, consumer goods, health care, education, science and technology and other industries, including well-known enterprises, government agencies, investment institutions and non-profit organizations at home and abroad.

Champu Consulting has rich experience and successful cases in the field of commercial due diligence, providing customers with high-quality commercial due diligence services and reports, and helping customers achieve efficient and high-return investment decisions and transactions. The following are some of the business due diligence cases of Champ Consulting:

1. Commercial due diligence of a domestic new energy vehicle manufacturer for an international private equity fund

Background: An international private equity fund plans to invest in a domestic new energy vehicle manufacturer. It needs to conduct a comprehensive commercial due diligence to evaluate its business model, market prospects, competitive advantages, profitability and growth potential, and determine reasonable investment valuation and terms.

Methodology: A team of automotive industry experts, market research experts, financial experts and business due diligence experts was assembled by Champ Consulting using the following methodology:

The macro environment, market size, market growth rate, market structure, market demand, market segmentation, market trends, market drivers, market barriers, market opportunities and market risks of the new energy vehicle industry have been analyzed and evaluated in depth to understand the market environment and potential of the target company.

A detailed analysis and assessment of the number, type, size, product or service, market share, cost structure, profitability, development strategy, strengths and weaknesses of the target company's main competitors was carried out to understand the relative position and competitive advantage of the target company in the market.

The target company's business processes, products or services, technological innovation, research and development capabilities, supply chain management, sales channels, customer relationships, brand image, market positioning, market strategy, financial status, financial forecasts, risk factors, etc. have been comprehensively analyzed and evaluated to understand the target company's core competitiveness and value creation capabilities.

The business plan and financial forecasts of the target company were verified and revised to reflect its true operating conditions and market prospects, as well as to determine reasonable investment valuations and terms.

Results: Champ Consulting provided clients with a high-quality commercial due diligence report and presentation, including the following conclusions and recommendations:

The target company is a new energy vehicle manufacturer with innovative capabilities and leading technologies. It has a variety of high-performance, high quality and high-efficiency products to meet different market needs and segments.

The target company has a high market share and visibility in the new energy vehicle industry, has established stable cooperative relations with major suppliers and distributors, and has formed a good reputation and loyalty with customers.

The target company's financial position is healthy and stable, with high profitability and growth potential, and its business plan and financial forecast are basically reasonable and credible, but some uncertain factors and risks need to be considered, such as policy changes, market competition, technological updates, etc.

The target company is an attractive investment target and clients are advised to invest, but further transaction negotiations with the target company are required to obtain more favorable investment prices and terms, as well as more adequate investment protection and equity.

Evaluation: The client is very satisfied with the business due diligence service and report of Shangpu Consulting, and believes that the team of Shangpu Consulting has professional industry knowledge and market research capabilities, provides comprehensive, in-depth and objective analysis and evaluation, and provides customers with investment decisions. And transaction negotiations provide strong support and basis. The client eventually succeeded in reaching an investment agreement with the target company, gaining a high return on investment and market share.

2. Commercial due diligence of a foreign educational institution for a domestic listed company.

Background: A domestic listed company plans to acquire a foreign educational institution and needs to conduct a comprehensive commercial due diligence to evaluate its business model, market prospects, competitive advantages, profitability and growth potential, and determine a reasonable purchase price and terms.

Methodology: A team of education industry experts, market research experts, finance experts and business due diligence experts was assembled using the following methodology:

The macro environment, market size, market growth rate, market structure, market demand, market segmentation, market trends, market drivers, market barriers, market opportunities and market risks of the education industry have been analyzed and evaluated in depth to understand the market environment and potential of the target company.

A detailed analysis and assessment of the number, type, size, product or service, market share, cost structure, profitability, development strategy, strengths and weaknesses of the target company's main competitors was carried out to understand the relative position and competitive advantage of the target company in the market.

The target company's business processes, products or services, teaching quality, teaching methods, teachers, student groups, curriculum settings, learning effects, brand image, market positioning, market strategies, financial status, financial forecasts, risk factors, etc. Comprehensive analysis and evaluation to understand the core competitiveness and value creation capabilities of the target company.

The business plan and financial forecasts of the target company were verified and revised to reflect its true operating conditions and market prospects, as well as to determine a reasonable purchase price and terms.

Results: Champ Consulting provided clients with a high-quality commercial due diligence report and presentation, including the following conclusions and recommendations:

The target company is an educational institution with a good reputation and professional level. It provides various types and levels of educational services to meet different needs and segments of the market.

The target company has a high market share and popularity in the education industry, has established a stable cooperative relationship with major partners and customers, and has formed a good reputation and loyalty with students and parents.

The financial situation of the target company is healthy and stable, with high profitability and growth potential, and its business plan and financial forecast are basically reasonable and credible, but some uncertain factors and risks need to be considered, such as policy changes, market competition, education quality, etc.

The target company is an attractive acquisition target and the client is advised to make an acquisition, but further transaction negotiations with the target company are required to obtain more favorable purchase prices and terms, as well as more adequate acquisition protection and equity.

Evaluation: The client is very satisfied with the business due diligence service and report of Shangpu Consulting, and believes that the team of Shangpu Consulting has professional industry knowledge and market research capabilities, provides comprehensive, in-depth and objective analysis and evaluation, and provides customers with acquisition decisions and Transaction negotiations provide strong support and basis. The client eventually succeeded in reaching an acquisition agreement with the target company, gaining a high acquisition return and market share.