What does due diligence mean?

Due diligence is also translated as "due diligence". It refers to a series of investigations conducted by the acquirer on the assets and liabilities, operating and financial status, legal relationship, opportunities and potential risks of the target company during the acquisition process.

It is one of the most important links in the process of enterprise merger and acquisition, and it is also an important risk prevention tool in the process of enterprise merger and acquisition.

In the process of investigation, professional experience and expert resources in management, finance and taxation are usually used to form independent opinions to evaluate the advantages and disadvantages of mergers and acquisitions as decision support for management.

The investigation is not limited to reviewing the historical financial situation, but also focuses on assisting the acquirer to reasonably predict the future, which also occurs in the preliminary work of venture capital and public listing of enterprises.

Extended data:

For large M&A activities involving multiple potential buyers, due diligence usually goes through the following procedures:

1. The seller designates an investment bank to be responsible for the coordination and negotiation of the whole merger and acquisition process.

2. The potential buyer should appoint a due diligence team composed of experts (usually including lawyers, accountants and financial analysts).

3. The potential buyer and the expert consultant hired by the potential buyer sign a "confidentiality agreement" with the seller.

4. Under the guidance of the seller, the seller or the target company will collect all relevant data and compile the data index.

5. Potential buyers should prepare a due diligence list.

6. Designate a room (also called "reference room" or "due diligence room") to store relevant materials.

7. Establish a program to give potential buyers the opportunity to ask other questions about the target company and obtain copies of documents that can be disclosed in the reference room.

8. Consultants (including lawyers, accountants and financial analysts) hired by potential buyers make a report, briefly introducing matters of great significance for determining the value of the target company. The due diligence report should reflect the substantive legal matters found in the due diligence, usually including suggestions on the transaction framework and analysis of various factors affecting the purchase price according to the information obtained in the investigation.

9. The buyer shall provide the draft M&A contract for negotiation and revision.

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