Due diligence means due diligence.
1, about the introduction of due diligence
Due diligence, also known as prudent investigation, generally refers to the investor in the target enterprise to reach a preliminary intention of cooperation, after consensus, the enterprise's historical data files, management personnel's background, market risk, management risks, technological risks and financial risks to do a comprehensive and in-depth review.
It is mainly carried out during capital operation activities such as acquisitions and investments, but due diligence will also be required beforehand when a company goes public for issuance, in order to initially understand whether it has the conditions for listing.
2, due diligence content
Due diligence content includes background investigation of management personnel; market assessment; sales and purchase order fulfillment; environmental assessment; production and operation system; management information system (reporting system); financial forecasting methodology and the accuracy of past forecasts; sales volume and assumptions of the premise of financial forecasts.
Additionally there is verification of financial statements, bills of sale and purchases; current cash, accounts receivable and payable, and debt positions; asset verification for loan possibilities, inventory and equipment listings; arrangements for payroll, benefits and retirement funds; contracts for leasing, sales, purchasing, employment, etc.; and potential legal disputes.
3. Due Diligence Procedures
An investment bank is appointed by the seller to be responsible for the coordination and negotiation of the entire merger and acquisition process; the potential buyer appoints a due diligence team of experts (usually including attorneys, accountants, and financial analysts); and the potential buyer and the expert consultants it hires sign a "confidentiality agreement."
The seller or the target company, under the seller's direction, gathers all relevant information together and prepares an index of the information; the potential buyer prepares a due diligence checklist; and a room is designated to house the relevant information (also referred to as a "data room" or "due diligence room"). ").
Establishing a process whereby the prospective buyer will have the opportunity to ask additional questions about the target company and obtain copies of the documents that can be disclosed in the data room; and having consultants retained by the prospective buyer (including attorneys, accountants, and financial analysts) make a report outlining the matters that are important in determining the value of the target company.
The due diligence report should reflect the substantive legal matters found in the due diligence investigation, and usually includes a recommendation on the framework of the transaction based on the information obtained in the investigation and an analysis of the factors affecting the purchase price. The buyer provides a draft of the M&A contract for negotiation and amendment.