Due diligence (DD) is unavoidable in merger and acquisition processes. Simply put, DD is the process through which investors or buyers get to know their target company inside out.
There are quite a few due diligence service providers, as there are many ways to use their services.
For instance, financial due diligence firms focus on issues like balance sheets, income statements, and similar documents.
Typically, that’s when the business world reaches out to companies like Acquinoxadvisors.com.
However, the operational due diligence process (ODD) focuses on different aspects. Keep reading and find out more.
Article Contents
An X-Ray of Business Operations
The main goal of operational diligence is to analyse every aspect of a company’s daily routine.
It includes all operations from development to the sales point, quality standards of products or services, and internal protocols. Like financial due diligence services, ODD also analyzes business models and growth strategies currently in place.
It’s a highly valued tool for private equity managers and businesses, as over 35% of them credit their success to well-conducted ODDs.
Indeed, it’s a vital decision-making instrument for hedge funds and private equity funds to calculate revenue prospects and spot value-creation opportunities.
Unlike financial or legal DDs, which are mostly risk-focused, ODD focuses on possible opportunities.
Instead of looking into the past, it looks into the future, finding ways to improve processes and create value. Additionally, ODDs don’t end with their first report and require constant monitoring.
Here are the core aspects of top-quality operational due diligence.
Investment Risks and Risk Management
DD specialists will look into every aspect of the target company that brings up risks.
It includes cybersecurity and IT systems, financial control instruments, and regulatory issues, among others. Investors must know legal issues and handle them promptly, if necessary.
Sustainability
Investors are unlikely to toss a dime into companies they aren’t sure whether they have sustainable practices and goals.
They start by reviewing operational efficiency, looking for flaws and ways to fix them, and improving existing operations.
By reviewing all of the target company’s operations, investors can find potential for value creation in the future.
Business sustainability doesn’t regard only its practices but also its ability to recover from disasters and sudden downfalls.
Compliance
Failure to provide evidence of compliance with industry regulations is a deal breaker for investors. They want to invest in companies that follow KYC and AML rules, data privacy policies, etc.
Regulatory compliance translates into trustworthiness in this market, apart from being a legal requirement.
How to Speed Up the Process
Time is a precious asset in the business world. DD operations are naturally complex but can become a nightmare if the company isn’t well-organized.
So, the first step is to gather and organize all the necessary information beforehand. Thanks to technology, there are other ways to speed up the process.
For instance, virtual data rooms (VDRs) are gaining space in the M&A market. VDRs create a cloud space where companies can share sensitive documents and streamline operations much more efficiently.
It’s possible to create different granular access levels, further ensuring data safety. Better still, many of these tools provide live chat around the clock.
ODDs avoid nasty post-deal surprises, and it’s a must-have for any serious investor. It looks complicated, but if the target company has all its ducks in a row, it’s a pretty straightforward step, too.
FAQ
What is ODD? What aspects does it cover?
ODD focuses on the operational aspects of a target company. It mainly evaluates risks, risk management, compliance issues, and business practices.
It’s essential for identifying potential threats to the company’s sustainability and growth opportunities.
Why is ODD vital for M&A?
Operational due diligence is essential for M&A operations because it gives potential investors and partners an x-ray of the company’s processes, policies, and protocols.
Hedge and private equity funds also use this instrument to identify potential risks and liabilities.
Why is Acquinox Advisors the best option for ODD services?
Acquinox Advisors is an industry leader in financial due diligence services and operations regarding mergers and acquisitions.
It combines sharp business expertise with the latest digital technologies, including AI tools. More importantly, it guarantees complete confidentiality to its clients, who often become business partners.
