How to do due diligence?

the purpose of due diligence is to enable buyers to discover as much as possible about the shares or assets they want to buy. From the buyer's point of view, due diligence is risk management. For buyers and their financiers, there are various risks in M&A itself, such as the accuracy of the past financial books of the target company; Whether the main employees, suppliers and customers of the target company will stay after the merger; Whether there are any obligations that may lead to the disintegration of the operation or financial operation of the target company. Therefore, it is necessary for the buyer to remedy the imbalance of information acquisition between the buyer and the seller by implementing due diligence. Once the risks and legal problems are identified through due diligence, the buyer and the seller can negotiate on who should bear the relevant risks and obligations, and the buyer can decide under what conditions to continue the acquisition activities. \xd\ For a large M&A activity involving multiple potential buyers, due diligence usually goes through the following procedures: \ xd \ 1. The seller designates an investment bank to be responsible for the coordination and negotiation of the whole M&A process. \ xd \ 2. The potential buyer shall appoint a due diligence team composed of experts (usually including lawyers, accountants and financial analysts). \ xd \ 3. The potential buyer and the expert consultant hired by the potential buyer sign a "confidentiality agreement" with the seller. \ xd \ 4. Under the guidance of the seller, the seller or the target company will collect all relevant materials and prepare the data index. \ xd \ 5. The potential buyer shall prepare a due diligence list. \ xd \ 6. Specify a room (also known as "data room" or "due diligence room") for placing relevant materials. \ xd \ 7. Establish a set of procedures so that potential buyers can have the opportunity to ask other questions about the target company and obtain copies of the documents that can be disclosed in the data room. \ xd \ 8. Consultants (including lawyers, accountants, financial analysts) hired by potential buyers make a report, briefly introducing matters that are important for determining the value of the target company. The due diligence report should reflect the substantive legal matters found in the due diligence, which usually includes suggestions on the transaction framework and analysis of various factors affecting the purchase price based on the information obtained in the investigation. \ xd \ 9. The draft M&A contract shall be provided by the buyer for negotiation and modification. \xd\ due diligence outline of consulting company \xd\ 1. Company profile \xd\ 1. Background and introduction of the company; \xd\ 2. Historical evolution of the company; \xd\ 3. Changes in the ownership structure, capital increase and asset reorganization since the establishment of the company; \xd\ 4. Main development stages since the establishment of the company, and the reasons for changes and developments in each stage; \xd\ 5. Major changes in business development, production capacity, profitability, sales volume and product structure since the establishment of the company; \xd\ 6. The company's foreign investment, including investment amount, investment proportion, investment nature, investment income, etc. and the introduction of the main invested units; \xd\ 7. Employee status of the company, including age structure, education level structure, post distribution structure and technical title distribution structure; \xd\ 8. Resumes of directors, supervisors and senior managers; \xd\ 9. The company's dividend distribution over the years and the company's current dividend distribution policy; \xd\ 1. The company's implementation of the stock ownership plan for senior managers and employees. \xd\ II. Organizational structure of the company \xd\ 1. Organizational management structure established by the company now; \xd\ 2. Articles of Association; \xd\ 3. Composition of the company's board of directors. Part-time jobs of senior managers and members of the board of supervisors; \xd\ 4. Shareholder structure of the company, introduction of major shareholders, including background, shareholding ratio, main business, registered capital, assets, profitability, business scope and legal representative, etc. \xd\ 5. Business transactions between the company and the above major shareholders (such as raw material supply, cooperative research and development products, patent technology and intellectual property rights, sales agents, etc.) and capital transactions, and whether there is a related party transaction contract to regulate the above business and capital transactions; \xd\ 6. What support does the company's major shareholders have for the company's business development, including capital, market development, research and development, technology investment, etc. \xd\ 7. Relevant information of the company's subsidiaries (factories), including names, businesses, assets, financial statements, income and profitability, and foreign business transactions; \xd\ 8. Relevant information of the holding subsidiary, including name, business, asset status, financial statement, income and profit status, foreign business transactions and domestic capital valley business transactions; \xd\ 9. How to manage the company and the above-mentioned wholly-owned subsidiaries (factories) and holding subsidiaries in a unified way in administration, sales, material supply and personnel; \xd\ 1. Introduction of major shareholding companies. \xd\ III. Supply \xd\ 1. The types of raw materials and other auxiliary materials needed by the company in its business, including their uses and their proportion in the demand for raw materials; \xd\ 2. Information about the main suppliers of the above-mentioned raw materials, and whether the company has signed a long-term supply contract with the relevant suppliers; if so, please explain the main terms of the contract; \xd\ 3. Please list the proportion of raw materials provided by each supplier in the company's total procurement; \xd\ 4. List and basic information of the company's main outsourcing manufacturers, details of outsourcing parts, details and distribution of outsourcing molds, prices and delivery cycles of outsourcing parts, and qualification certification of outsourcing manufacturers; \xd\ 5. Does the company import raw materials, if so, the proportion of the imported raw materials, and whether the state has any policy restrictions on the import of the raw materials; \xd\ 6. The settlement method of the transaction between the company and raw material suppliers, and whether there is any credit transaction; \xd\ 7. The company's consumption of major energy sources. \xd\ IV. Business and products \xd\ 1. The main businesses and business descriptions that the company is currently engaged in, and the importance of each business in the whole business income; \xd\ 2. Background information of the industry in which the main business is located; \xd\ 3. The development prospect of this business; \xd\ 4. The growth of major businesses in recent years, including sales volume, revenue, market share, sales price trend, and the respective proportions of various products in the company's sales revenue and profits; \xd\ 5. The company's product series, product parts and components are subdivided and detailed; \xd\ 6. Product structure of the company, introducing the main products produced by the company at present and the sales situation in recent years by classification; Product demand status; \xd\ 7. Product quality, technical content, functions and uses, main technologies applied, technical performance indicators and product competitiveness of the above products; Targeted specific consumer groups; \xd\ 8. Does the company have patented products, and if so, what protective measures does the company have? \xd\ 9. What kind of trademarks are used to sell the products of the company, and whether the above trademarks are registered for exclusive use by the company; \xd\ 1. Major awards and honorary titles obtained by the above products; \xd\ 11. What measures will the company take to improve product quality, upgrade product grade and enhance product competitiveness? \xd\ 12, the company's new product development; \xd\ V. Sales \xd\ 1. Briefly describe the development of domestic and foreign sales markets and the establishment of sales network of the company's products; \xd\ 2. Who are the main customers of the company, and introduce the relevant information of the main customers and their proportion in the total sales of the company; The geographical distribution of the company's main customers; \xd\ 3. Main domestic sales regions, sales management and sales network distribution of the company's products; \xd\ 4. The sales ratio of the company's products at home and abroad, and the distribution structure and proportion of major countries and regions for export; \xd\ 5. Does the company have a long-term fixed-price sales contract? \xd\ 6. Main measures and marketing means for the company to expand sales; \xd\ 7. Structure of sales staff, including number, education, work experience, division of labor, etc. \xd\ 8. The company's main incentives for sales staff; \xd\ 9. What is the company's advertising strategy, the main media of advertising and the proportion of advertising expenses in each media, the total amount and growth of the company's annual advertising expenses, and the proportion of total advertising expenses to the company's total expenses; \xd\ 1. Please list the company's main competitors in the domestic and foreign markets and their main information, and their respective market proportions in the domestic and foreign markets; \xd\ 11. What after-sales services the company provides to consumers and how to arrange them; \xd\ 12. How long is the company's credit period, and what is the proportion of credit sales to the total sales; Whether there have been bad debts in history, and what is the proportion of actual bad debts to accounts receivable every year; The situation and reputation of the main credit customers; \xd\ 13. Does the company have the right to import and export? If not, which foreign trade company does the company entrust as its agent, and its main information is introduced; \xd\ 14. What impact will China's accession to the WTO have on the company's products? \xd\ VI. Research and Development \xd\ 1. Please introduce the company's research institute in detail, including the establishment time, research and development strength, research and development achievements, main research equipment, research and development means, research and development procedures, research and development organization and management structure, etc. \xd\ 2. The structure of the company's technical developers and the resumes of engineers and major technical developers; \xd\ 3. List of main research and development institutions cooperating with the company and the cooperative development situation; Introduction to the main information of the cooperative unit; \xd\ 4. The main patented technologies, independent intellectual property rights and patents owned by the company at present, including name, use, application and awards; \xd\ 5. The research and development expenses invested by the company every year and their proportion to the company's operating income; \xd\ 6. What are the new technologies and products that the company is currently researching and developing? \xd\ 7. Development cycle of the company's new products, \xd\ 8. New technologies and products planned to be researched and developed in the future; \xd\ VII. Major fixed assets and business facilities of the company \xd\ 1. Composition of major fixed assets of the company, including the name, original value, net value, quantity, use and depreciation of major equipment, and advanced technology; \xd\ 2. Distribution of fixed assets by production and business use, auxiliary production and business use, non-production and business use, office use, transportation use and other uses; \xd\ 3. Property facilities such as houses and buildings owned by the company, including construction area, occupied area, original value, net value, depreciation and acquisition method; \xd\ 4. The company's current main projects under construction, including name, investment plan, construction period, commencement date, completion date, progress and whether it has been approved by government departments; \xd\ 5. The nature, area, market price, acquisition method and current purchase price (lease price) of the land currently owned by the company; \xd\ VIII. Corporate Finance \xd\ 1. Sources and composition of corporate income and profits; \xd\ 2. The composition of the company's main business costs and the composition of the company's management expenses; \xd\ 3. Composition of the company's sales expenses; \xd\ 4. The proportion of main business income to income; \xd\ 5. Composition of major expenditures of the company; \xd\ 6. Financial indicators such as accounts receivable turnover rate, inventory turnover rate, current ratio, quick ratio, return on net assets, gross profit margin and asset-liability ratio in the first three years of the company; \xd\ 7. Balance sheet, profit and profit distribution statement of the company for the first three years; \xd\ 8. What are the factors that have a significant impact on the company's main income and expenditure in the future? \xd\ 9. Various tax rates currently implemented by the company; \xd\ IX. Main creditor's rights and debts \xd\ 1. What are the main creditor's rights of the company at present and the reasons for their formation; \xd\ 2. The company's main bank loans at present, the amount, interest rate, term, maturity date and whether there are overdue loans; \xd\ 3. The company's loans to related parties (shareholders, employees and holding subsidiaries); \xd\ 4. The company's guarantee and low mortgage on the loans of major shareholders and other companies and enterprises; \xd\ X. Investment projects \xd\ 1. The main information of the investment projects raised this time, including project feasibility, project establishment, purpose, total investment, planned commencement date, project background information, investment recycler, financial rate of return, annual sales revenue and profit after production; \xd\ 2. The technical content and advanced degree of the investment project, the future market development prospect and its influence on the development of the whole company; \xd\ 3. What are the major investment projects that the company has completed at present, and the main investment projects that have been completed are introduced. \xd\ XI. Others \xd\ 1. The advanced degree, maturity, characteristics, performance and advantages of the technologies and production processes currently used by the company; \xd\ 2. Compared with competitors in the same industry, the company's current main business advantages, management advantages, competitive advantages, market advantages and technological advantages; \xd\ 3. The company, its major shareholders, directors and senior managers are currently involved in legal proceedings, and if so, what is the impact on the company; \xd\ xii. Industry background information \xd\ 1. Please introduce the development of the industry in recent years; \xd\ 2. Relevant industrial policies, management measures and possible policy changes in the future; \xd\ 3. The degree of market competition in this industry, and introduce the main competitors in the same industry, including annual production capacity, annual actual output, annual sales volume, sales revenue, market share and position in the domestic market; \xd\ 4. Development of this industry abroad; \xd\ 5. The impact of the current national policies on this industry; \xd\ 6. Introduction of the current national market, including annual demand, annual supply, regional demand distribution, regional supply distribution, and the number of production enterprises, whether they are competing with similar imported products.