Firms undergoing a merger or acquisition or seeking capital from private investors should be ready for an operational due diligence (ODD) review. Most commonly used in financial firms, particularly by hedge funds and other investment firms, and in industrial M&A deals, an ODD can also benefit retail organizations and any business.


There are many types of due diligence. Due diligence might include a review of a company’s financials, human resource practices, legal DD, intellectual property DD, technology DD, and even environmental DD. Each of these may be important in an M&A deal. Operational due diligence focuses on a specific aspect of a business, its processes and its productivity.  


What Is Operational Due Diligence?

Operational due diligence explores the value an M&A deal will have for both parties, but specifically the party that is making the investment or leading the acquisition. Unlike financial due diligence, which looks at a company’s accounting statements, ODD is a tailored process that explores operational risks and processes and may help the companies involved in the merger or acquisition spot unique growth opportunities. It will be unique to each company and transaction.  


What Types of M&A Deals Require an ODD Review?

Unlike legal and financial due diligence, ODD reviews aren’t always mandated for an M&A deal. However, due to their nature, they can be useful for virtually any type of firm. Because operational due diligence seeks to explore the potential for value creation compared to the purchase price, it helps both parties understand what to expect and helps to reduce risks during the deal.  


Private equity firms and hedge funds are most likely to rely on ODD reviews. Businesses in manufacturing, retail and finance may use ODD reviews, but they are also a good idea for real estate transactions, high tech companies and other industries.  


Benefits of an ODD Review

An ODD review can help both parties in an M&A deal integrate their operational processes faster, leading to a smoother transition. It can help parties recognize and act on business opportunities quicker and help them play into the strengths of each organization so that the whole becomes greater than the two parts. An ODD is forward-looking and analyzes business strategies, processes and internal data. It can focus on one or many aspects of a business, helping the parties move to value-creation more quickly following the merger.  


How to Prepare for Your Operational Due Diligence Review

Preparing for an operational due due diligence review is different from preparing for legal, financial or even IP due diligence. That’s because it’s a bespoke process that varies based on the industry and on the companies involved in the M&A.  


But certain elements remain the same no matter what kind of due diligence is being performed. It starts with having your own documents in order and your own processes clearly established. The firm seeking investment capital, or both parties embarking on an M&A deal, must be clear on how their businesses are running today in order to provide a clear look into future possibilities.  


An ODD review may examine the following areas of your business:  


  • Sales
  • Marketing
  • Purchasing
  • Supply chain
  • Manufacturing processes
  • Administration
  • Strategy
  • Resources
  • Opportunities
  • Business processes


Documents You’ll Need

The documents required for operational due diligence may not be as standard as those in financial or legal due diligence. Companies may spend many days or weeks seeking hard-to-find data. Some documents that might be necessary include the following:  


  • Company culture documents and employee handbooks
  • Rewards structure plans
  • Employee assessment papers and an analysis of them for each department
  • Marketing strategies
  • Sales data
  • Efficiency analyses  
  • Technology analysis  


Financial statements and profit-and-loss sheets may assist in operational due diligence, but ODD dives even deeper than financial due diligence.  


The Importance of Cybersecurity

As in any due diligence, many forms will change hands during an ODD review, most with mission-critical, proprietary company data and classified intellectual property. Preparing for an ODD review means not only must your company gather the appropriate data, it must also have the means to store and transmit it securely. A data breach could call into question the company’s capability to keep customer data and financial records secure, which could kill any possible deal.  


How a Virtual Data Room Can Help

A virtual data room such as Caplinked not only keeps mission-critical documents secure during an ODD, it also helps track the parties who have viewed or edited the documents and spreadsheets. Additionally, it tracks actions and changes within a Workspace, and grants or revokes permission to view files as needed.  


You can share files securely under the strictest international security standards, offering all parties peace of mind that their company data will be secure throughout the operational due diligence review and even after the transaction is complete. See how Caplinked can help with your next operational due diligence review in any industry. Start here with a free trial.  


Dawn Allcot is a full-time freelance writer and content marketing expert specializing in technology, business and finance.  



Deloitte – Operational Due Diligence – Operational Due Diligence – A Framework

Citi Private Bank – Operational due diligence: vital for private equity and real estate too

Dummies – M&A Due Diligence: Operations and Financial Information

Corporate Finance Institute – What are the Types of Due Diligence?  

IMAA-Institute – Due Diligence: Think Operational