China due diligence refers to research and analysis of a company or business entity conduct for a transaction or a project like merger and acquisition or security purchase. Due diligence is also a research into and examination of the background and financial condition, business operations and contractual obligations of a person or enterprise. It is done to establish a complete, accurate and reliable vision of the subject so that realistic, fact-based decisions can be made by another entity considering investment, business relationship, acquisition or litigation. It is very necessary to have the due diligence when you invest or start the cooperation with Chinese parties.
China Due Diligence- Categories
Due diligence is essentially the investigation of a target company through reviewing documents and interviewing persons with knowledge about the company. For the buyer of a business or an investor in a significant equity stake in a company, the due diligence investigation will attempt to reveal all material facts and potential liabilities relating to the target business or company. There are various sub-categories of due diligence, including financial type, commercial type, legal type, human resource type and so on.
What Tannet can do for your Due Diligence
Based on purposes, due diligence could help you in such aspects as financial, commercial, legal, and human resource.
1. Financial Due Diligence
You are advised to hire an experienced accounting firm to conduct a financial due diligence, while buying or investing a business in advance of signing an agreement. It is an investigation or audit of an investment project, which is conducted to confirm all related information or data, so as to contribute to a sound decision on this project. We would:
A. Develop comprehensive work plans that deliver an insightful quality of earnings result as well as reconciliations of free cash flows.
B. Assess a target’s working capital components in detail with the intent of supporting the working capital peg calculations.
C. Prepare bridge analyses of sales and earnings with each step supported by underlying analysis.
D. Thoroughly analyze profitability by business segment, customer, product, or service, which is often fundamental to supporting our client’s investment thesis.
E. Focused attention on reserves and accruals on the balance sheet. Understanding all liabilities, on and off the balance sheet, as well as the quality of the assets is key to arriving at a final purchase price for an acquisition.
2. Commercial Due Diligence
Commercial due diligence informs you of clients’ investment decisions by providing independent, fact-based analysis regarding a target’s most pressing commercial and operational issues.
A. We focus on value creation within an opportunity by conducting deep analysis of the market landscape, securing the customers’ perspective, assessing the competitive dynamics, auditing operations, and analyzing multiple cost/revenue scenarios.
B. We use a well-honed commercial due diligence process to deliver the independent validation required for private equity firms to make investment decisions confidently. We combine rigorous analysis with a fact-driven assessment of market dynamics, conducting in-depth interviews with customers and other market participants and evaluating the competitive landscape to identify opportunities and risks and validate our clients’ investment theses as well as prepare for successful exits. We are known for challenging management plans based on objectivity and deep industry knowledge.
3. Legal Due Diligence
Legal due diligence is a crucial component to any significant corporate transaction. Although it can be a demanding process, once your company understands the reasons for legal due diligence and the basic manner in which it is usually conducted, the process should proceed more efficiently, saving costs and headaches.
A. Help Establish the Big Picture First.
Before diving into a stack of thick contracts, competent buyer's counsel will first seek to understand your company at a broader level. Unless your company is a public company with SEC reports available at the click of a button, be prepared to help the buyer establish a big picture understanding of your company by providing concise summaries about your business and industry.
B. Be Prepared to Provide Documents and Interviews.
Buyer's counsel will likely prepare a lengthy due diligence request list asking you to provide every piece of paper that possibly relates to your company.
4. Human Resource Due Diligence
One company, planning for an acquisition, should consider material human resource risks early in the due diligence process.
A. Employee demographics
To make a basic research on the targeted company’s employee demographics is the first step for human resource due diligence. You’d better check such information as: the number and the location of employees of this targeted company.
B. Employment agreements
Employment agreements have covered many crucial terms of employment, so it is quite necessary to review them. These agreements require careful review to ensure that financial implications and any change in control triggers for payment are fully understood.
C. Employee benefits and compensation details
Employee benefits and compensation form a very substantial part of overall employment cost, naturally, as one issue not to be ignored. A change in ownership may result in the acceleration of payment of certain benefits and compensation arrangements.
Contact Us
If you have further queries, don’t hesitate to contact Tannet anytime, anywhere by simply visiting Tannet’s website english.tannet-group.com, or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82143422, or emailing to tannet-solution@hotmail.com. You are also welcome to visit our office situated in 16/F, Taiyangdao Bldg 2020, Dongmen Rd South, Luohu, Shenzhen, China.
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