Operation Manual of Due Diligence 1. Purpose of Due Diligence Due Diligence, also known as prudential investigation, refers to a series of activities in which investors conduct on-the-spot investigation and data analysis on all matters related to this investment of the target enterprise after reaching an initial cooperation intention with the target enterprise through consensus.
its purpose is to determine the rationality of the hypothetical basis of the future growth forecast of the project company and that the project company has no hidden major risks to investors, and to protect both investment and financing parties from prosecution by other stakeholders.
Due diligence cannot guarantee that all potential risks can be found, but it is an effective measure for both investors and financiers to make investment transactions more efficient.
2. Basic principles of due diligence 1. Independence 2. Objectivity 3. Caution 4. Comprehensiveness: The investigation contents and related materials should be as comprehensive as possible 5. Thoroughness 6. Importance 7. Principle of differential treatment: for different enterprises, Due diligence should be focused. 3. Basic procedures of due diligence. 4. Member structure of due diligence project team. 1. Financial audit-experienced financial and auditing personnel. 2. Business investigation-it is best to have rich management experience in manufacturing enterprises. 3. Lawyers are quite key project members, and try their best to find risks. 4. Professionals-experts in the industry. Mainly to guide and assist business investigators. 5. Basic methods of due diligence. 1. Review the financial statements provided by the project company and other legal, financial and business materials, and find key and significant influencing factors.
2. The analytical program analyzes the information obtained from various channels, such as public statements of banks, taxation, accounting firms, industry experts, listed companies in the same industry and industry research reports, and finds anomalies and major problems, such as trend analysis and structural analysis.
3. Interview and full communication with all levels, functional personnel and other relevant internal and external personnel within the enterprise; Visit and consult the downstream customers, upstream suppliers and competitors of the project company.
4. Check and consult the meetings, industry journals, industry reports and other materials of industry associations for comparison.
5. Intra-group communication The members of the investigation team come from different backgrounds and professions, and their mutual communication is also a way to achieve the purpose of the investigation.
VI. Specific implementation of due diligence 1. Preparatory work A. Discuss the project, mainly focusing on the historical evolution, management team, main business, profitability, business model and legal background of the target enterprise.
and arrange the division of labor for the members of the project team.
(first meeting) B. according to the main business of the enterprise, conduct targeted market research, such as technical barriers, policy orientation, domestic and international industry status and future trends, market positioning, etc.
at the same time, regarding the investigation of competitors, the focus is on market share and technical conflict.
(the second meeting) C. If you have doubts in the meeting, you can answer them in the next meeting through post-meeting investigation. If you still can't answer them, you should focus on field investigation.
D. finally, according to the discussion results of the meeting, prepare the List of Enterprise Preparation Materials, Summary of Key Investigation Issues and Schedule of Due Diligence Investigation.
(The original division of labor can be adjusted appropriately) 2. Notes for the interview A. Make an interview outline before the interview to prevent omissions. Please 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 enterprise of the interview time, main contents, etc. At the same time, provide the Material Preparation List to require the target enterprise to prepare according to the actual situation.
C. maintain an equal, cooperative, modest and respectful attitude during the interview.
When you ask for the preparation materials, you should pay attention to the tone and adopt the correct methods.
D. interview records include: participants and positions, interview time, place and main interview contents; Attention should be paid to details when recording contents, especially names and data, which should be verified before recording; Make special marks for important contents.
e. The interview records should be sorted out in time (as far as possible on the same day) and filed as important documents.
interview content: the arrangement should be comprehensive, logical and clear, and cannot be simply listed; Data collection: it should be sorted and registered.
3. The content of the interview is to talk with relevant personnel according to the division of labor in advance.
in the course of conversation, if you find any new materials that have not been prepared in advance, you need to record and supplement them in time.
The specific conversation contents include: team, business, market, technology, finance and legal affairs.
a. the team survey requires the resumes of managers and the turnover of company personnel in the past 12 months.
Copy of ID card, copy of degree certificate, and share proportion of each founder.
It is particularly important to inspect the quality of management teams. For example, in some cases, entrepreneurial teams with failure experience have advantages over other teams.
in the investigation of shareholders' structure, in addition to the relationship between shareholders, we should also pay attention to whether shareholders can provide value-added services, such as being helpful in marketing, having experience in technology research and development, and having methods in enterprise management.
B. business investigation, which is related to the profitability and profitability means of the enterprise, is one of the key points in due diligence.
Investigate the current sales model, future sales planning, objective evaluation and grading of target market, comparative analysis of advantages and disadvantages with competitors and other extension surveys.
internally, it includes: rules and regulations, management process, reward and punishment system, execution ability, etc.
C. Market research product production includes: independence of production equipment, long-term supply contract, certificate of supply qualification, proportion of raw and auxiliary materials consumption, proportion of raw and auxiliary materials cost, unit cost and selling price.
Macro issues such as market status, future trends, domestic and international trends, policy support, market share, etc. These issues need to be verified by different people.
you can purchase industry reports, interview experts, and consult the CEO and chairmen in the industry.
competitor and downstream customer surveys.
no matter what methods are adopted, direct contact is needed.
the purpose is to objectively and fairly understand the competitiveness and advantages and disadvantages of the same industry, and the urgency of the market demand for products.
D. Technical barriers of technical investigation are independent, reproducible and substitutable, among which the independence of technology is the most important, and there can be no intellectual property disputes with other enterprises.
employ senior professionals to issue independent reports and analysis to verify its technical content.
if you participate as an intangible asset, you must have a professional evaluation report.
e. financial investigation finance is the most important work in due diligence.
it is divided into two parts: past financial data and future financial forecast.
specifically, it includes income list, balance sheet, cash flow statement, monthly operating status, budget and actual situation, breakdown of sales and gross profit (by product and by region), list of accounts receivable by enterprise name and age, different products and their contribution to income, cost structure and rate of return.
according to different types of enterprises, distinguish the key inspection targets.
for production enterprises, it is necessary to calculate and confirm again according to the financial data and cost accounting provided by the enterprise, and the data provided by the enterprise cannot be taken as the reference target.
The purpose is to determine the profitability of products and the substitutability of downstream customers' demands.
F. Legal investigation provides one copy of the business licenses of the parent company, subsidiary company, holding company and affiliated company and one copy of the legal person ID card; Plus the articles of association and resolutions of shareholders' meeting, labor contract, relevant provisions of intellectual property rights, trademark filing, genuine software purchase certificate, court judgment, etc.
4. Points for attention in the investigation A. Actively encourage the interviewees to put forward their personal opinions on the existing operation of the enterprise and suggestions for future improvement.
B. it is best to design the data format required by the enterprise in advance and obtain electronic data.
C. members of the project team should exchange the obtained information with each other and write a report in the first time, so as to find problems in time and communicate with the enterprise again in the next day's work.
D. In the preparation of reports, project team members should use a unified template format to facilitate the synthesis of reports.
e. in the process of forming the report, we should make full use of various analytical methods and tools to express the scattered information concisely and make comments.
F. for the multi-day investigation arrangement, it is necessary to hold a meeting every night to communicate with each other about the investigation situation in their respective areas and make the investigation arrangement for the next day.
For the investigation content of the day, do the Stage Investigation Section.
summarize the information that has been collected, and compile the Catalogue of Collected Information, so as to serve as the schedule of the Due Diligence Report.
VII. 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, so that the readers of the report can have a basic grasp of the important information of the investigated enterprise.
2) content of due diligence n legal investigation n business investigation n financial investigation n investment cooperation scheme 3) summary 2. Requirements of due diligence report The due diligence report should analyze and evaluate the key structures of the enterprise as much as possible, and it is required to express the scattered and disorganized documents, forms, data, interview records and other information obtained by project members with professional analysis tools, statistical comparison of indicators, curves and diagrams, and use as few long as possible.
3. Writing skills of due diligence report 1) Using appropriate titles 2) Expressing opinions and suggestions appropriately 3) Using charts, Such as graphs, comparison tables, patterns, etc. 4) The expression content should be quantified. 5) The sentences and paragraphs should be concise and concise. 6) The key attachments should be highlighted by drawing boxes, underlining, italics and boldness: the material preparation list is based on the name of this certificate. Note the basic license, business license, tax registration certificate, organization code certificate, account opening permit, loan card ownership certificate, land certificate, and the articles of association of the real estate license company, including the articles of association of previous changes and resolutions of the shareholders' meeting. Financial materials such as equity transfer agreement are called note-prepared financial system. Financial statements report the costs and expenses in recent three years, semi-annual, quarterly and monthly. The unit production cost of various products, the consumption of main raw materials and the cost proportion, the specific composition of the expenses in the three periods, the list of creditor's rights and debts, and the reasons for their formation. The amount, interest rate, term, maturity date of various bank loans and other loans, and whether there are overdue loans for related enterprises and individuals to borrow from each other, A detailed list of guarantees and mortgages, various taxes and tax rates currently implemented by taxation, various tax payment certificates, electronic tax payment vouchers, VAT invoices, Special items such as tax preference of fixed assets, main fixed assets list (original value, net value), etc. are called the original patent certificate, transfer agreement, patent office transfer approval certificate and publicity documents * * * Supporting project-related certificates, trademark registration certificate, asset evaluation report, relevant qualification certificate GMP certificate, health permit, industry qualification, safety and environmental assessment certificate, etc. Other auxiliary materials are called the company structure chart, organization chart, staffing and information of the equity incentive plan team. Salary system; Production process flow chart of feasibility report of labor contract sample; Analysis of future planning of production, scientific research and market; Analysis of the advantages and disadvantages of upstream and downstream relationships, contracts related to customers of upstream and downstream enterprises, the proportion of sales of each company in the market relationship, competitive enterprises, products and target markets.