A due diligence is an audit, verifying and checking what you want to buy versus what you have been told or shown. It is the investigation of information, a process of people management and the technique of observation.
In due diligence, you are always given a set of data either in the raw state or in a “decorated” state. What I term as “decorated’ state has to do with the presentation of the data. In some cases, the presentation is so good that the fact is hidden and investigation becomes tedious. Data can be manipulated.
People management is important to the success of a good diligence. Finding the right people to talk to and willing to provide you the necessary information is not so straight forward in many due diligences.
Technique of observations comes from experience. Over the years this part of the due diligence has help me in negotiating many deals and always in our favour. Like a project in China, where I was told that the company has US$X turnover, but when we look at the store room where the receipts are kept, we noticed that for a company with that kind of turnover and the volume of trade has issued very little receipt taking into account the nature of their business is low value products. In China receipt is an important aspect of doing business in China. There was another case of an Indian catering company who told me his business turnover is US$Y and wanting to sell the business for a very high value. I conclude that what he is asking for is realistic pricing as his account is below what is its true value. I went to his warehouse where he kept all his equipment for catering and it is impossible to do a low value business given the amount of catering equipment in the store. The lesson is to be observant.
This is email has to sent out from a different channel and a day late. This is because, China has block off the blog sites and also You Tube sites
To be continued….