Due Diligence Operation Manual 1. Purpose of Due Diligence Due diligence, also known as prudential investigation, means that after the investor reaches a preliminary cooperation intention with the target company and reaches an agreement through consultation, the investor will conduct all the due diligence on the target company. A series of activities including on-site investigation and data analysis on matters related to this investment.
Its purpose is to determine the reasonableness of the assumptions underlying the project company's future growth forecast and that the project company does not pose any hidden major risks to investors, and to protect both investment and financing parties from prosecution by other interested parties.
Due diligence does not guarantee that all potential risks can be discovered, but it is an effective measure for both investment and financing parties to do their best to make investment transactions more efficient.
2. Basic principles of due diligence 1. Independence 2. Objectivity 3. Prudence 4. Comprehensiveness: The investigation content and related materials must be as comprehensive as possible 5. Thoroughness 6. Importance 7. Principle of differential treatment: Due diligence should focus on different enterprises. 3. Basic procedures of due diligence 4. Member structure of due diligence project team 1. Financial audit - financial and auditors with rich experience 2. Business investigation - It is best to have people with rich experience in the management of manufacturing enterprises. 3. Lawyers - they are very key project members and try their best to identify risks. 4. Professionals - experts in the industry, mainly to guide and assist business investigators in their work. 5 , Basic methods of due diligence 1. Review the financial statements and other legal, financial, business and other information provided by the project company to discover key and significant influencing factors.
2. Analytical procedures analyze data obtained from various channels, such as banks, taxation, accounting firms, industry experts, public statements of listed companies in the same industry, and industry research reports, and discover abnormalities and major Problems such as trend analysis, structural analysis, etc.
3. Interview and fully communicate with all levels and functional personnel within the enterprise as well as other relevant internal and external personnel; visit and interview with the project company’s downstream customers, upstream suppliers, and competitors consult.
4. Search and compare information such as conferences of industry associations, industry journals, and industry reports.
5. Internal communication within the team The members of the investigation team come from different backgrounds and majors, and mutual communication is also a way to achieve the purpose of the investigation.
6. Specific implementation of due diligence 1. Preliminary preparations A. Discussion on the project, mainly focusing on the target company’s history, management team, main business, profitability, business model, legal background, etc. Lord.
And make division of labor arrangements among project team members.
(First round meeting) B. Conduct targeted market research based on the company's main business, such as technical barriers, policy orientation, domestic and foreign industry status and future trends, market positioning, etc.
At the same time, the investigation on competitors focuses on market share and technological conflicts.
(Second round of meeting) C. If there are doubts in the meeting, the questions will be answered in the next meeting through post-meeting investigation. If the answer still cannot be answered, the focus will be on on-site inspection for verification.
D. Finally, based on the discussion results of the meeting, prepare the "Enterprise Preparation Material List", "Summary of Key Inspection Issues", and "Due Diligence Itinerary".
(The original division of labor arrangement can be appropriately adjusted) 2. Precautions for interviews A. An interview outline should be formulated before the interview to prevent omissions. You can refer to the "Summary of Key Investigation Questions".
B. Make a schedule at least two days in advance before the interview, and inform the target company of the interview time, main content, etc., and provide a "Material Preparation List" to require the target company to prepare according to the actual situation.
C. Maintain an attitude of equal cooperation, humility and respect during the interview.
When requesting preparation materials, pay attention to the tone and adopt the correct method.
D. The content of the interview record includes: participants and positions, interview time, location and main interview content; pay attention to details when recording the content, especially names and data, which must be verified and correct before recording; Important content should be specially marked.
E. Interview records should be compiled in a timely manner (as much as possible on the same day) and archived as important documents.
Interview content: The arrangement should be comprehensive, logical and organized, and cannot be simply listed; data collection: it should be classified and organized, and registered.
3. The content of the interview will be divided according to the division of labor in advance, and each person will talk to the relevant personnel.
During the conversation, if new information is discovered that has not been prepared in advance, it must be recorded and supplemented in a timely manner.
Specific conversation content includes: team, business, market, technology, finance and legal affairs.
A. The team survey requires the resumes of management personnel, the turnover of company personnel in the past 12 months, etc.
Copies of ID cards, degree certificates, and shareholding ratios of each founder.
It is particularly important to examine the quality of the management team. For example, in some cases, entrepreneurial teams with failure experience have advantages over other teams.
When investigating the shareholder structure, in addition to examining the relationship between shareholders, we must also pay attention to whether shareholders can provide value-added services, such as being helpful in marketing and sales, having experience in technology research and development, and being good at corporate management. There are methods and so on.
B. Business investigation Business investigation is related to the profitability and means of profitability of the company, and is one of the key points in due diligence.
Examine the company’s current sales model, future sales plans, objective evaluation and classification of target markets, comparative analysis of advantages and disadvantages with competitors, and other extensive investigations.
For internal purposes, it includes: rules and regulations, management processes, reward and punishment systems, execution capabilities, etc.
C. Market research on product production includes: independence of production equipment, long-term supply contract, supply certificate, proportion of raw and auxiliary materials consumption, proportion of raw and auxiliary material cost, unit cost, selling price, etc.
Market status, future trends, domestic and international trends, policy support, market share and other macro issues need to be verified by different people.
You can purchase industry reports, interview experts, and consult CEOs and chairmen in the industry.
Competitor and downstream customer surveys.
No matter what method is adopted, direct contact is required.
The purpose is to objectively and impartially understand the competitiveness and pros and cons of the same industry, as well as the urgency of market demand for products, etc.
D. Technical investigation: technical barriers, independence, replicability, and substitutability. Among them, technical independence is the most important, and there must be no intellectual property disputes with other companies.
Hire senior professionals to issue independent reports and analyzes to verify its technical content.
If it is an intangible asset, a professional evaluation report is required.
E. Financial investigation Finance is the most important task in due diligence.
Divided into two parts: past financial data and future financial forecasts.
Specifically includes the income list, balance sheet, cash flow statement, monthly operating status, budget and actual situation, sales and gross profit breakdown (by product classification, by geography), List of accounts receivable by business name and age, different products and their contribution in revenue, cost structure and profitability.
According to different types of enterprises, the key inspection objectives are distinguished.
For production-oriented enterprises, financial data and cost accounting need to be calculated and confirmed again based on the financial data provided by the enterprise, and the data provided by the enterprise cannot be used as a reference target.
The purpose is to determine the profitability of the product and the substitutability of downstream customer needs.
F. For legal investigation, provide a copy of the business license and legal person ID card of the parent company, subsidiary, holding company, and affiliated company; plus the company's articles of association and shareholders' meeting resolutions that have been changed in the past, Labor contracts, intellectual property related clauses, trademark registrations, genuine software purchase receipts, court judgments, etc.
4. Key points to note during the survey A. Actively encourage interviewees to provide personal insights into the current operations of the company and suggestions for future improvements.
B. It is best to design the data format required by the company in advance to obtain electronic data.
C. The project team members should exchange the information obtained with each other and write reports as soon as possible so that problems can be discovered in a timely manner and they can communicate with the company again during the next day's work.
D. In report preparation, project team members should use a unified template format to facilitate report synthesis.
E. In the process of report formation, make full use of various analysis methods and tools to express scattered information concisely and make evaluations.
F. For multi-day investigation arrangements, it is necessary to hold meetings every night to communicate on the investigation status of their respective areas of responsibility and formulate the investigation arrangements for the next day.
For the investigation content of the day, make a "Phase Investigation Section".
Summarize the information that has been collected and prepare a "Catalogue of Collected Information" as a appendix to the "Due Diligence Report".
7. Due diligence report 1. Basic framework of due diligence report 1) Overview The overview part is a summary of the information obtained in this report, allowing readers of the report to have an understanding of the major information of the company under investigation. Basic mastery.
2) Contents of due diligence n Legal investigation n Operational investigation n Financial investigation n Investment cooperation plan 3) Summary 2. Requirements for expression in due diligence report The due diligence report should try its best to describe the key structures of the enterprise Analysis and evaluation require that the scattered and messy format documents, tables, data, interview records and other information obtained by the project members be expressed using professional analysis tools, indicator statistical comparisons, curves, diagrams, etc., and as little as possible Long text descriptions enable readers to quickly understand the meaning to be expressed, and strive to be concise, clear and clear at a glance.
3. Tips for writing due diligence reports 1) Use appropriate titles 2) Appropriately express opinions and suggestions 3) Use charts, such as curve charts, comparison tables, patterns, etc. 4) Express content in quantified terms 5) Statements , paragraphs should be concise and concise 6) Use picture frames, underline, italics, and bold to indicate key points Attachments: Material preparation list Basic licenses Document name remarks Basic licenses Business license, tax registration certificate, organization code certificate, account opening license, loan Card ownership certificates, land certificates, real estate certificates, company articles of association, including previous changes to articles of association, resolutions of shareholders' meetings, equity transfer agreements and other financial information, name notes, financial system, financial statements, cost and expense reports for the past three years, semi-annual, quarterly and monthly statements, various product units Production costs, main raw material usage and cost proportion, detailed composition of three period expenses, credit and debt details and reasons for formation, amount, interest rate, term, maturity date of each bank loan and other borrowings, and whether there are overdue loans. A detailed list of mutual borrowings, guarantees and mortgages between affiliated enterprises and individuals, various tax types and tax rates currently implemented, various tax payment certificates, electronic tax payment vouchers, value-added tax invoices, and tax preferential fixed assets. A detailed list of major fixed assets ( Original value, net value) Notes on the name of special projects such as patents, original patent certificate, transfer agreement, patent office transfer approval certificate and publicity document*** Support project-related certifications, trademark registration certificate, asset evaluation report, relevant qualification certificates, GMP certificate, health license, Other auxiliary materials such as industry qualifications, safety and environmental impact assessment certificates, name notes, company structure, equity structure chart, organizational chart, staff position allocation, equity incentive plan team information, resumes of shareholders, senior executives, and core technical personnel; salary system; feasibility of labor contract sample Report production process flow chart; production, scientific research, and market future planning analysis of upstream and downstream relationships, upstream and downstream corporate customer-related contracts, each company's sales volume, market relationships, analysis of competitive companies, products, and target market competition advantages and disadvantages