Purpose and content of investment due diligence

Investment due diligence refers to the process of conducting a comprehensive, in-depth and systematic investigation and analysis of the financial, legal, tax, market and technical aspects of the investment object before making an investment decision, so as to evaluate the investment risks and returns and provide investors with a basis for decision-making. The main purpose of investment due diligence is to help investors make the right investment decisions and to avoid or reduce investment mistakes caused by asymmetric, incomplete or inaccurate information. Specifically, investment due diligence can help investors achieve the following objectives:

-Confirm the authenticity and legality of investment objects and exclude false, illegal or controversial trading objects;

-Assess the financial position and profitability of the investment object and determine a reasonable valuation and transaction price;

-Identify the risk points and hidden dangers of the investment object, and formulate corresponding risk prevention and remedial measures;

-Analyze the market environment and competitive advantages of the investment target, and predict the future development trend and potential;

-Discover the value-added space and improvement direction of the investment object, and formulate an effective value growth plan;

-Communicate and coordinate with all stakeholders to facilitate smooth transaction.

Depending on the type, industry, size and stage of investment, the content of investment due diligence will vary. In general, however, common investment due diligence elements include the following:

-Financial due diligence: mainly to review and analyze the financial statements, accounting policies, internal controls, financial forecasts, etc. of the investment object to assess its financial position and profitability;

-Legal due diligence: mainly to review and analyze the legal documents, contracts, licenses, litigation, arbitration, etc. of the investment object to confirm its legality and compliance;

-Tax due diligence: mainly to review and analyze the tax filings, tax benefits, tax disputes, etc. of investment objects to assess their tax risks and impacts;

-Market due diligence: mainly research and analysis of the industry, market, customers, competitors, etc. of the investment target to assess its market position and competitive advantage;

-Technical due diligence: mainly to conduct research and analysis on the products, services, technologies, intellectual property rights, etc. of the investment object to evaluate its technical level and innovation ability;

-Human resources due diligence: mainly to study and analyze the organizational structure, staffing, salary and benefits, labor relations, etc. of the investment object to evaluate its human resources management and efficiency;

-Environmental due diligence: mainly to study and analyze the environmental impact, pollutant discharge and environmental compliance of investment objects to assess their environmental responsibilities and risks.

Value creation logic of investment due diligence

Investment due diligence is not only a risk management tool, but also an opportunity for value creation. Through investment due diligence, investors can discover the potential value and improvement space of the investment object, formulate reasonable investment strategy and value growth plan, so as to improve the return on investment. The value creation logic of investment due diligence can be summarized in the following steps:

-Step 1: Determine investment objectives and criteria. Investors should be based on their strategic objectives, resource capacity and risk appetite, clear investment objectives, scope, duration and expected returns, as well as the choice of appropriate investment objects and methods.

-Step 2: make investment due diligence. Investors should conduct a comprehensive, in-depth and systematic investigation and analysis of the investment object according to the investment objectives and standards, so as to obtain true, complete and accurate information, evaluate its value and risk, discover its advantages and disadvantages, and identify its potential and problems.

-Step 3: Develop an investment strategy. Investors should determine reasonable valuations and transaction prices based on the results of investment due diligence, formulate effective transaction structures and terms, design appropriate financing plans and arrangements, and plan feasible exit paths and methods.

-Step 4: Implement a value growth plan. According to the investment strategy, investors should effectively communicate and cooperate with the investment objects, implement necessary restructuring and integration, optimize management and operation, improve efficiency and quality, expand market and customers, increase revenue and profit, and reduce costs and risks.

-Step 5: Monitor value changes. According to the value growth plan, investors should regularly track and evaluate their investment objects, monitor their performance and value changes, analyze their influencing factors and trends, identify and solve problems in a timely manner, and adjust and optimize their plans.

The value creation method of investment due diligence.

Depending on the type, industry, size and stage of investment, the value creation approach to investment due diligence will vary. In general, however, common approaches to investment due diligence value creation include the following:

-Value creation approach based on financial data. This method is mainly through the comparative analysis of the investment object and the same industry or the same size of other enterprises in the financial indicators of the differences, to find its financial management level, profitability, cost control ability and other aspects of the advantages and disadvantages, and put forward corresponding suggestions for improvement. For example, by analyzing indicators such as operating income, gross profit margin, and net interest rate, the company's market share, product pricing ability, and operating efficiency can be evaluated; by analyzing indicators such as current ratio, quick ratio, and debt ratio, the company's solvency can be evaluated Ability, financial soundness, etc.; by analyzing indicators such as cash flow statement and free cash flow, the company's cash flow status and investment return ability can be evaluated.

-A value creation approach based on market data. This method is mainly through the collection and analysis of industry, market, customers, competitors and other relevant data, to find the advantages and disadvantages of investment objects in the market environment, and put forward corresponding suggestions for improvement. For example, by analyzing industry scale, growth rate, profit rate and other indicators, the attractiveness and development potential of the industry can be evaluated; by analyzing market share, penetration rate, loyalty and other indicators, the position and competitiveness of the enterprise in the market can be evaluated; by analyzing customer demand, satisfaction, conversion rate and other indicators, the customer relationship and market potential of the enterprise can be evaluated; by analyzing competitors' products, prices, channels, marketing and other strategies, we can evaluate the competitive advantage and differentiation of enterprises.

-Value creation approach based on technical data. This method is mainly through the collection and analysis of products, services, technology, intellectual property and other relevant data, to find the advantages and disadvantages of investment objects in technological innovation, and put forward corresponding suggestions for improvement. For example, by analyzing the function, performance, quality, design and other characteristics of the product, the market demand and competitiveness of the product can be evaluated; by analyzing the content, form, effect, satisfaction and other characteristics of the service, the market demand and competitiveness of the service can be evaluated; by analyzing the level, progress, patent and other characteristics of the technology, the innovation ability and protection ability of the technology can be evaluated; by analyzing the quantity, quality and value of intellectual property rights, we can evaluate the innovation ability and protection of intellectual property rights.

-A value creation approach based on HR data. This method is mainly through the collection and analysis of organizational structure, staffing, compensation and benefits, labor relations and other relevant data, to find out the advantages and disadvantages of investment objects in human resources management, and put forward corresponding suggestions for improvement. For example, the rationality and efficiency of the organizational structure can be evaluated by analyzing the characteristics of the level, function and coordination of the organizational structure; the rationality and efficiency of the staffing can be evaluated by analyzing the quantity, quality and structure of the staffing; the rationality and competitiveness of the salary and welfare can be evaluated by analyzing the level, structure and incentive characteristics of the salary and welfare; by analyzing the stability, harmony and cooperation of labor relations, we can evaluate the rationality and efficiency of labor relations.

-An approach to value creation based on environmental data. This method is mainly through the collection and analysis of environmental impact, pollutant emissions, environmental compliance and other relevant data, to find out the advantages and disadvantages of investment objects in environmental responsibility, and put forward corresponding suggestions for improvement. For example, by analyzing the environmental impact assessment report, the degree and scope of the impact of the investment object on the environment can be assessed; by analyzing the pollutant emissions and standards, the degree and risk of the investment object to the environment can be assessed; by analyzing environmental regulations and policies, The degree of compliance and responsibility of the investment object to the environment can be assessed.

The Value Creation Case of Investment Done

In order to better illustrate the value creation process and method of investment due diligence, this article will take Shangpu Consulting as an example to introduce a specific case of providing investment due diligence services to a private equity fund.

Shangpu Consulting Company is a consulting company specializing in investment due diligence services, with rich industry experience and professional team. One of its clients is a private equity fund that plans to buy a biopharmaceutical business. The company is mainly engaged in the research and development and production of anti-cancer drugs, and has a number of drug projects in research or on the market. The private equity fund hopes to assess the value and risk of the enterprise and formulate a reasonable investment strategy and value growth plan through the investment due diligence service of Shangpu Consulting.

According to the investment objectives and standards of private equity funds, Shangpu Consulting conducted a comprehensive, in-depth and systematic investigation and analysis of the enterprise, covering financial, legal, tax, market, technology, human resources, environment and other aspects. By investing in due diligence, Champ Consulting has identified the following strengths and weaknesses of the business:

-Advantages: The company has strong R & D and innovation capabilities, its drug projects have high market demand and competitiveness, its management team has rich industry experience and expertise, its financial status is sound, and its legal compliance is high, Its environmental responsibility is strong.

-Disadvantages: The company faces high technical and market risks. Its drug projects need to pass strict approval and supervision. Its market competition is fierce, its customer concentration is high, its human resource costs are high, and its tax risks are high. Big.

Based on the results of the investment due diligence, Champu Consulting has developed the following investment strategies and value growth plans for private equity funds:

-Investment strategy: A private equity fund decides to acquire the business and pay the transaction price in cash and equity. The transaction price is determined by a combination of factors such as the company's historical performance, future forecasts, and market references. The transaction structure includes incentives and constraints on the company's major shareholders, management, key employees, etc. Financing options include the use of own funds, bank loans, partners and other channels to raise funds. The exit path includes listing the business or selling it to other investors at the appropriate time.

-Value growth plan: The private equity fund plans to effectively communicate and collaborate with the company after the acquisition to implement the following value growth measures:

-Strengthen R & D investment and management, improve the quality and progress of drug projects, and speed up the approval and listing of drug projects;

-Expand market channels and customer groups, improve the market share and sales of drug projects;

-Optimize financial management and tax planning to improve financial efficiency and profitability;

-Establish human resources incentive mechanism and training system to improve employee satisfaction and efficiency;

-Implement environmental protection measures and social responsibility activities to enhance the image and reputation of the company.

Through the above investment due diligence services, Shangpu Consulting helped the private equity fund successfully complete the acquisition of the company and provided it with an effective value creation solution. It is estimated that within five years of the acquisition, the private equity fund can achieve a return on its investment in the business30%Above.

Conclusion

Investment due diligence is an important investment decision-making tool and a powerful value creation opportunity. Through investment due diligence, investors can comprehensively, deeply and systematically understand the value and risk of investment objects, discover their potential value and room for improvement, and formulate reasonable investment strategies and value growth plans, so as to improve the return on investment. The value creation process and method of investment due diligence can be adjusted and optimized according to different investment types, industries, scales and stages to adapt to different investment needs and situations. The value creation case of investment due diligence can provide reference and reference for investors to help them achieve better investment results. Shangpu Consulting Company is a consulting company specializing in investment due diligence services. It has rich industry experience and professional team. It can provide customized investment due diligence services for different types of investors and help them achieve their value creation goals.