Operational Due Diligence
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Operational Due Diligence (ODD) is the process by which a potential purchaser reviews the operational aspects of a target company during mergers and acquisitions.
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).
Reviewers
An ODD review is often performed by a third party such as a professional services firm (e.g. KPMG, Ernst & Young, PricewaterhouseCoopers and Deloitte) or a consulting firm (e.g. Boston Consulting Group, Roland Berger, AT Kearney, Arthur D. Little). Often the ODD is requested by the bank or other financier that it supporting the acquisition and is interested in the downside risks (especially to the cashflow projections).
Other types of diligence
ODD is only one form of due diligence. Others include:
- FDD, financial due diligence, where the target company's financial status is reviewed,
- CDD, commercial due diligence, where a target company's commercial status - the market position of its products and/or services - is reviewed, and
- ITDD, IT due diligence, where a target company's IT environment is reviewed.
