due diligence means due diligence.

1. Introduction to the Best Effort

Due diligence, also known as prudential investigation, generally refers to the comprehensive and in-depth review of the historical data documents, background of managers, market risks, management risks, technical risks and capital risks of the enterprise by investors after reaching a preliminary cooperation intention with the target enterprise through consensus.

it is mainly carried out in capital operation activities such as acquisition and investment, but when an enterprise goes public, it also needs to conduct due diligence in advance to preliminarily understand whether it has the conditions for listing.

2. Try your best to adjust the content

Try your best to adjust the content including the background investigation of managers; Market evaluation; Completion of sales and purchase orders; Environmental assessment; Production operation system; Management information system (reporting system); The method of financial forecast and the accuracy of past forecast; Assumptions of sales volume and financial forecast.

in addition, there is the verification of financial statements, sales and purchase bills; Current cash, accounts receivable, accounts payable and debts; Possibility of loan, verification of assets, inventory and equipment list; Arrangements for wages, benefits and retirement funds; Contracts on leasing, sales, procurement, employment, etc.; Potential legal disputes, etc.

3. Due diligence procedures

The seller designates an investment bank to be responsible for the coordination and negotiation of the whole M&A process; A due diligence team composed of experts (usually including lawyers, accountants and financial analysts) appointed by the potential buyer; A "confidentiality agreement" is signed between the potential buyer and the expert consultant hired by the potential buyer and the seller.

The seller or the target company shall collect all relevant materials together and prepare the data index under the guidance of the seller; Prepare a due diligence list by the potential buyer; Specify a room (also known as "data room" or "due diligence room") for storing relevant materials.

establish a procedure to give potential buyers the opportunity to ask other questions about the target company and obtain copies of documents that can be disclosed in the data room; Consultants (including lawyers, accountants and financial analysts) hired by potential buyers make a report, which briefly introduces matters of great significance in determining the value of the target company.

the due diligence report should reflect the substantive legal matters found in the due diligence, usually including suggestions on the transaction framework and analysis of various factors affecting the purchase price based on the information obtained in the investigation. The draft M&A contract is provided by the buyer for negotiation and modification.