due-diligence
Operational due diligence examines how the business actually runs — people, systems, supply chain, IT, quality and integration load — so the buyer knows what it must keep, fix or fund after closing.
Operational due diligence sits between commercial due diligence and financial due diligence. It asks whether the factory, the software delivery machine, the warehouse network or the professional-services bench can deliver the plan the banker modelled. For a private equity buyer it also asks what the first 100 days will cost.
Typical modules: key-person dependence, org design, production capacity and yield, supplier concentration, IT architecture and cyber, quality systems, health and safety, and the realism of synergy or carve-out plans.
In the LP/GP world, “operational due diligence” can also mean a limited partner reviewing a fund’s own processes. In company M&A it means reviewing the target’s operations. Same label, different object. This page is the company-transaction meaning.
A light-industrial target shows strong EBITDA margins. ODD finds that two CNC cells are fully loaded, the ERP is a heavily customised package with one internal expert, and 18% of COGS sits with a single supplier on 30-day informal terms. None of this broke the audit. All of it changes capex, working capital and key-person escrow at closing.
Buyers care because operations are where thesis meets payroll. Sellers care because operational chaos is priced as a discount even when the market is fine. Management cares because ODD is where “we will hire after close” gets stress-tested.
Treating IT as a footnote. Ignoring the carve-out of shared services from a parent. Assuming ISO certificates equal process discipline. Leaving people risk entirely to the HR folder in the data room.
ODD is sampling. A two-week site visit will not find every quality escape. It also cannot replace legal due diligence on environmental permits.
Operational facts — capacity, systems, people — are usually scattered across slides and inboxes. A structured company layer lets ODD, valuation and the integration plan read the same objects instead of competing extracts.