Business investment due diligence refers to a comprehensive, in-depth and systematic investigation and analysis of the financial, legal, market, technical and management aspects of the investment object before making a business investment decision, in order to assess its value, risk and potential, and provide investors with a reliable basis for decision-making. Business investment due diligence is a complex and important task that requires certain processes and methods to be followed to ensure the efficiency and quality of due diligence. Based on the many years of experience of Shangpu Consulting Company (Shangpu Consulting) in the field of business investment due diligence, this paper summarizes the eight processes of business investment due diligence, namely: pre-preparation, due diligence plan, data collection, data analysis, due diligence report, due diligence feedback, transaction negotiation and post-follow-up. This paper also combines the customer cases served by Shangpu Consulting Company, and makes a specific description and analysis of each process, aiming to provide a practical and professional guide for commercial investors.

Business investment refers to the investment of funds or resources in an enterprise or project for the purpose of obtaining profits or other economic benefits. Business investment involves multiple stakeholders, such as investors, investees, intermediaries, etc., and therefore requires adequate investigation and analysis before investment decisions are made to ensure the reasonableness and effectiveness of the investment. This process of investigation and analysis is called Business Investment Due Diligence.

Business investment due diligence is a systematic and comprehensive work, which not only examines the financial situation of the investee, legal compliance, market competitiveness, technological innovation ability, management level and other internal factors, but also pays attention to the industry environment, policies and regulations, market demand, competitors and other external factors. The purpose of business investment due diligence is to assess the value, risk and potential of the investee, to provide investors with a reliable basis for decision-making, and to provide support and basis for transaction negotiations.

Business investment due diligence is a complex and important task that requires certain processes and methods to be followed to ensure the efficiency and quality of due diligence. Based on the many years of experience of Champu Consulting (Shangpu Consulting) in the field of business investment due diligence, we have summarized the eight processes of business investment due diligence, which are:

Pre-preparation

best effort plan

Data collection

Data analysis

due diligence report

Feedback

Deal Negotiations

Late follow-up

Below we will provide a specific description and analysis of each process, with examples from the customer cases we have served.

Pre-preparation

Pre-preparation is the first and very important process of business investment due diligence. The main contents of the preliminary preparation include:

Determine due diligence objectives and scope: Due diligence objectives are the aspects that investors wish to understand and assess through due diligence, such as the financial position of the investee, legal compliance, market competitiveness, etc. The scope of due diligence refers to the specific departments, businesses, projects, etc. of the investee involved in due diligence. Determining due diligence goals and scope can help investors clarify the focus and direction of due diligence and avoid ineffective efforts and wasted resources.

Identify due diligence teams and division of labor: A due diligence team is the person responsible for performing due diligence, including the investor's own personnel and externally hired professionals, such as lawyers, accountants, consultants, etc. Identifying a due diligence team and division of labor can help investors make full use of the expertise and experience of all parties to improve the quality and efficiency of due diligence.

Sign a confidentiality agreement: A confidentiality agreement is an agreement signed between an investor and an investee prior to the due diligence process to protect the confidential information exchanged between the parties during the due diligence process and to prevent disclosure or misuse of the information. The signing of a confidentiality agreement can enhance the trust and cooperation between the two parties and protect the interests of both parties.

Case: An internationally renowned food company (hereinafter referred to as Company A) plans to acquire a leading beverage manufacturer in a region of China (hereinafter referred to as Company B). In the preliminary preparation stage, Company A has determined the target of due diligence to assess Company B's financial position, market position, brand influence, product quality, production capacity, legal compliance, etc. Company A has determined the scope of due diligence to be Company B's headquarters, main production bases, and main sales channels. Company A has set up a due diligence team composed of its own finance department, legal department, marketing department and other personnel, as well as external law firms, accounting firms, consulting firms and other professionals, and has defined their respective responsibilities and tasks. Company A and Company B have signed a detailed and strict confidentiality agreement, which specifies the type, scope, manner and duration of information to be exchanged between the two parties during the due diligence process, and agrees on the liability and compensation for breach of the confidentiality agreement.

best effort plan

The due diligence plan is the second and very critical process of business investment due diligence. The main contents of the due diligence plan include:

Develop a due diligence list: A due diligence list is a list of data and information that needs to be collected and analyzed, such as financial statements, contract documents, market reports, etc., according to the objectives and scope of due diligence. Developing a due diligence list can help investors organize and manage data and information systematically, avoiding omissions or duplication.

Make a due diligence schedule: A due diligence schedule refers to the start time, end time, person in charge, etc. of each task according to the due diligence team and division of labor. Setting a due diligence schedule can help investors to reasonably arrange and control their time and ensure that all tasks are completed on time.

Develop a due diligence budget: A due diligence budget is a budget that estimates the costs and resources to be spent, such as labor costs, travel, consulting fees, etc., based on the scope and methodology of due diligence. Making a due diligence budget can help investors allocate and use resources rationally and control costs.

Case: In the due diligence planning stage, Company A has developed a detailed and comprehensive due diligence list based on the due diligence objectives and scope, including information on Company B's financial data, legal documents, market data, technical data, management data, etc. Company A has developed a clear and practical due diligence schedule based on the due diligence team and division of labor, specifying the start and end dates, responsible persons, collaborators, etc. for each task. According to the scope and method of due diligence, Company A has formulated a reasonable and effective due diligence budget, estimated the labor costs, travel expenses, consulting fees, etc., and set up a certain reserve fund.

Data collection

Data collection is the third and very important process of business investment due diligence. The main contents of data collection include:

Determining data sources: Data sources are where data and information are obtained, such as information provided by the investee, public reports, third-party surveys, etc. Identifying data sources can help investors obtain more, more accurate and reliable data and information.

Determine the data method: the data method refers to the way in which data and information are obtained, such as written questionnaires, on-site interviews, field visits, etc. Identifying data methods can help investors obtain deeper, more comprehensive, and more intuitive data and information.

Determining data standards: Data standards refer to the requirements for the quality and format of data and information, such as completeness, accuracy, timeliness, consistency, etc. Identifying data standards can help investors ensure the validity and comparability of data and information.

Case: During the data collection phase, Company A identified a variety of data sources based on the due diligence list, including financial statements, contract documents, market reports, etc. provided by Company B; public industry reports, policies and regulations, news reports, etc.; third-party customer surveys, supplier surveys, competitor analysis, etc. Company A has determined a variety of data methods according to the due diligence schedule, including collecting basic information from Company B through written questionnaires; Collect in-depth information from senior management, core employees, important customers and major suppliers of Company B through on-site interviews; Collect intuitive information from Company B's headquarters, production bases and sales channels through on-site visits. Company A has determined a variety of data standards according to the due diligence budget, including the requirement that the information provided by Company B must be complete, accurate, timely and consistent with the public information. The investigation provided by the third party is required to be objective, true, effective and consistent with its own observation. The information collected by itself is required to be systematic, orderly, standardized and verified by other sources.

Data analysis

Data analysis is the fourth process of business investment due diligence, and it is also a very core process. The main contents of data analysis include:

Collating data: Collating data refers to the classification, induction, summary and other processing of collected data and information for further analysis. Collating data can help investors clearly grasp all aspects of the investee and discover the patterns and relationships among them.

Analysis of data: analysis of data refers to the collated data and information calculation, comparison, evaluation and other operations, in order to draw conclusions and recommendations. Analytical data can help investors gain an in-depth understanding of the value, risks and potential of their investees and provide a basis and support for investment decisions.

Verification data: verification data refers to the verification, review and correction of analyzed data and information to ensure its correctness and rationality. Validation data can help investors eliminate errors and biases in data and information and improve the credibility and quality of due diligence.

Case: In the data analysis stage, Company A collates, analyzes and verifies the collected data and information according to the goal of due diligence. Company A classified, summarized and summarized the financial data of Company B, calculated the revenue, profit, cash flow and other financial indicators of Company B, compared them with the industry average and competitors, evaluated the financial situation and profitability of Company B, and verified whether the financial statements of Company B were true, legal and complete. Company A classified, summarized and summarized the legal documents of Company B, compared the contract terms, intellectual property rights, tax disputes and other legal matters of Company B, compared them with relevant laws and regulations, evaluated the legal compliance and risk prevention ability of Company B, and reviewed whether the legal documents of Company B were effective, formal and complete. Company A classifies, summarizes and summarizes the market data of Company B, calculates the market share, growth rate, customer satisfaction and other market indicators of Company B, analyzes the industry trend and market demand, evaluates the market position and brand influence of Company B, and revises whether the market report of Company B is objective, true and effective. Company A classified, summarized and summarized the technical data of Company B, compared the product quality, innovation ability, R & D investment and other technical elements of Company B, and investigated with industry standards and technical development, evaluated the technical advantages and competitiveness of Company B, and verified whether the technical data of Company B were accurate, perfect and updated. Company A classifies, summarizes and summarizes the management data of Company B, analyzes the organizational structure, human resources, corporate culture and other management factors of Company B, and compares them with industry best practices and management concepts, evaluates the management level and efficiency of Company B, and reviews whether the management data of Company B is standardized, reasonable and transparent.

due diligence report

The due diligence report is the fifth and very important process of business investment due diligence. The main contents of the due diligence report include:

Writing a due diligence report: Writing a due diligence report is a detailed and accurate due diligence report based on the results of data analysis, which is used to present to investors all aspects of the investee and to give their own conclusions and recommendations. Writing a due diligence report can help investors fully understand the strengths and weaknesses of the investee, as well as the opportunities and challenges facing the investment.

Audit due diligence report: audit due diligence report refers to checking, modifying and perfecting the written due diligence report to ensure the correctness and rationality of its contents. Auditing due diligence reports can help investors eliminate errors and omissions and improve the quality and credibility of due diligence reports.

To submit a due diligence report: to submit a due diligence report refers to the formal delivery of an audited due diligence report to investors in order to facilitate their investment decisions. The submission of due diligence reports can help investors obtain due diligence reports in a timely manner to facilitate their investment decisions.

Case: In the due diligence report stage, Company A wrote a detailed and accurate due diligence report based on the results of data analysis, including the following parts:

Cover page: includes the title, date, author, recipient and other basic information of the due diligence report.

Table of Contents: Includes the titles and page numbers of the various sections and subsections of the due diligence report.

Summary: Includes a brief overview of the main elements, conclusions and recommendations of the due diligence report.

Body: Includes the details of the various chapters and subsections of the due diligence report, such as financial analysis, legal analysis, market analysis, technical analysis, management analysis, etc., as well as the corresponding data, charts, attachments, etc.

Conclusions and recommendations: Includes an overall assessment of the due diligence report, an analysis of strengths and weaknesses, an analysis of opportunities and challenges, and specific recommendations and observations for investors.

Appendix: Includes the sources and descriptions of the data, documents, information, etc. cited or referenced in the due diligence report.

Company A has reviewed, revised and perfected the due diligence report for many times to ensure the correctness and rationality of its contents. Company A formally submits the audited due diligence report to investors to facilitate their investment decisions.

Feedback

Feedback is the sixth process of business investment due diligence, and it is also a very necessary process. The main contents of the feedback include:

Obtaining due diligence feedback: Obtaining due diligence feedback is directed to investors to collect and understand their evaluations and opinions on due diligence reports, such as whether they are satisfied, whether there are doubts, whether there are objections, etc. Obtaining due diligence feedback can help investors identify and resolve possible problems and deficiencies in the due diligence process in a timely manner.

Handling due diligence feedback: Handling due diligence feedback refers to responding, explaining and supplementing due diligence reports based on the evaluations and opinions put forward by investors in order to eliminate investors' doubts and dissatisfaction. Handling due diligence feedback can help investors increase their trust and recognition of due diligence reports and lay a good foundation for deal negotiations.

Case: Company A, after submitting the due diligence report, obtains their feedback from investors on the due diligence report. Investors highly appreciated and affirmed the work of Company A and believed that Company A provided a professional and comprehensive due diligence report that provided them with valuable information and advice. However, investors have also raised some questions and objections, such as differences or conflicts between Company B and Company A in some aspects, such as product positioning, market strategy, corporate culture, etc., how to coordinate and integrate; Company B has some risks or hidden dangers in some aspects, such as financial debts, legal proceedings, market competition, etc., how to avoid and control them; Whether the valuation of Company B is reasonable, how to determine the transaction price and method, etc. Company A has carefully dealt with the feedback from investors and responded, explained and supplemented the due diligence report to eliminate investors' doubts and dissatisfaction. Company A analyzes the differences or conflicts of Company B, and puts forward some plans and suggestions for coordination and integration, such as product innovation, market development, enterprise training and other ways to realize the complementarity and cooperation between the two sides. Company A evaluates the risks or hidden dangers of Company B, and puts forward some measures and suggestions to avoid and control them, for example, through financial restructuring, legal negotiation, market cooperation and other ways to reduce the risks and losses of both parties; Company A demonstrated the valuation of Company B, and put forward some basis and suggestions for determining the transaction price and method, such as through financial analysis, market comparison, income prediction and other ways to determine a reasonable and fair transaction price and method.

Deal Negotiations

Deal negotiation is the seventh and very critical process of business investment due diligence. The main elements of the transaction negotiations include:

Determine negotiation objectives: negotiation objectives are the results that investors want to achieve in a transaction, such as transaction price, transaction method, transaction conditions, etc. Determining negotiation objectives can help investors clarify their expectations and bottom lines, providing direction and basis for negotiations.

Determine negotiation strategy: negotiation strategy refers to the actions and methods taken by investors in transactions, such as information exchange, balance of interests, concessions and compromises. Determining a negotiation strategy can help investors effectively communicate and negotiate with their investees and provide support and security for negotiations.

Identify the negotiation team: The negotiation team refers to the personnel responsible for participating in the transaction negotiation, including the investor's own personnel and external professionals, such as lawyers, accountants, consultants, etc. Identifying a negotiating team can help investors take full advantage of the expertise and experience of each party to provide assistance and advice to the negotiations.

Case: Company A determines its negotiation objectives, strategies, and teams during the transaction negotiation phase, based on the results of the due diligence report and feedback processing. Company A's negotiating objective is to acquire all of Company B's equity at a reasonable and fair price and to enter into a detailed and strict equity transfer agreement with Company B, setting out the rights and obligations of both parties in the transaction. Company A's negotiation strategy is to exchange information with Company B on the basis of due diligence reports, and balance the interests according to the interests and needs of both parties, and make concessions and compromises when necessary. Company A's negotiation team is composed of its own finance department, legal department, marketing department and other personnel, as well as external law firms, accounting firms, consulting companies and other professionals, and defines their respective responsibilities and tasks.

Late follow-up

Later follow-up is the eighth process of business investment due diligence, and it is also a very necessary process. The main contents of the later follow-up include:

Completion of the transaction: Completion of the transaction refers to the completion of all aspects of the transaction in accordance with the agreement of the equity transfer agreement, such as payment of the transaction, registration of shares, announcement of the results of the transaction, etc. Completion of the transaction can help the investor formally achieve control and ownership of the investee, providing the basis for subsequent integration and operations.

Implementation of integration: Implementation of integration refers to the coordination and integration of various aspects of investors and investees, such as products, markets, technology, management, etc., according to trading objectives and strategies. The implementation of integration can help investors give full play to the advantages and potential of both sides, realize the complementarity and synergy of both sides, and improve the competitiveness and efficiency of both sides.

Supervising operations: Supervising operations is the monitoring and evaluation of the investee's operations, such as financial, legal, market, technical, and management, based on transaction objectives and strategies. Supervision and operation can help investors to find and solve the problems and difficulties that may exist in the investee in a timely manner, and ensure the stability and development of the investee.

Case: In the later follow-up stage, Company A completed the acquisition of Company B in accordance with the agreement of the equity transfer agreement, and announced the results of the transaction to relevant departments and the public. According to the transaction objectives and strategies, Company A has coordinated and integrated all aspects of itself and Company B, such as product innovation, market expansion, corporate training, etc., to achieve complementarity and synergy between the two sides. Company A monitors and evaluates the operation of Company B according to the transaction objectives and strategies, such as through financial analysis, legal review, market research, etc., to ensure the stability and development of Company B.

Summary

Business investment due diligence is a complex and important task that requires certain processes and methods to be followed to ensure the efficiency and quality of due diligence. Based on the many years of experience in the field of business investment due diligence, this paper summarizes the eight processes of business investment due diligence, namely: pre-preparation, due diligence planning, data collection, data analysis, due diligence reporting, due diligence feedback, transaction negotiation and post-follow-up. This paper also combines the customer cases served by Shangpu Consulting Company, and makes a specific description and analysis of each process, aiming to provide a practical and professional guide for commercial investors.