Operational due diligence

Operational due diligence (ODD) is the process by which a potential purchaser reviews the operational aspects of a target company during mergers and acquisitions. Most often ODDs are conducted in the industrial sector.

Process

The ODD review looks at the main operations of the target company and attempts to confirm (or not) that the business plan that has been provided is achievable with the existing operational facilities plus the capital expenditure that is outlined in the business plan. Additionally the ODD review will consider whether there is the potential for additional value to be wrought out of the target company by improving its operational function and also whether there are serious operational risks about which the potential buyer should be concerned (thereby allowing the buyer to consider aborting the deal or renegotiating the price). The approach for ODD varies by industry.

Reviewers

An ODD review is often performed by a third party such as a professional services firm. Often the ODD is requested by the bank or other financier that is supporting the acquisition and is interested in the downside risks.

ODD activities are often focused on analyzing the supply chain, engineering, and manufacturing operations of a target acquisition in detail.

Other types of diligence

ODD is only one form of due diligence. Others include:

References

    Due Diligence Services

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