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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, private equity investments, or capital raising. Its purpose is to ensure that the business model and operations of the target are suitable to the goals of the buyer. [1]
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.
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.
ODD is only one form of due diligence. Others include:
Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, business organizations, or their operating units are transferred to or consolidated with another company or business organization. This could happen through direct absorption, a merger, a tender offer or a hostile takeover. As an aspect of strategic management, M&A can allow enterprises to grow or downsize, and change the nature of their business or competitive position.
Risk management is the identification, evaluation, and prioritization of risks, followed by the minimization, monitoring, and control of the impact or probability of those risks occurring.
An audit is an "independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon." Auditing also attempts to ensure that the books of accounts are properly maintained by the concern as required by law. Auditors consider the propositions before them, obtain evidence, roll forward prior year working papers, and evaluate the propositions in their auditing report.
Corporate development refers to the planning and execution of strategies to meet organizational objectives. The kinds of activities falling under corporate development may include strategic planning, market and competitor mapping and tracking, phasing in or out of markets or products, arranging strategic alliances or partnerships or joint ventures, identifying and acquiring companies (M&A), securing funding or corporate financing, divesting of assets or divisions or selling the whole company, listing on a stock exchange or undertaking various capital management initiatives.
Due diligence is the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care.
In finance, valuation is the process of determining the value of a (potential) investment, asset, or security. Generally, there are three approaches taken, namely discounted cashflow valuation, relative valuation, and contingent claim valuation.
Forensic accounting, forensic accountancy or financial forensics is the specialty practice area of accounting that investigates whether firms engage in financial reporting misconduct, or financial misconduct within the workplace by employees, officers or directors of the organization. Forensic accountants apply a range of skills and methods to determine whether there has been financial misconduct by the firm or its employees.
Underwriting (UW) services are provided by some large financial institutions, such as banks, insurance companies and investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liability arising from such guarantee. An underwriting arrangement may be created in a number of situations including insurance, issues of security in a public offering, and bank lending, among others. The person or institution that agrees to sell a minimum number of securities of the company for commission is called the underwriter.
A management buyout (MBO) is a form of acquisition in which a company's existing managers acquire a large part, or all, of the company, whether from a parent company or individual. Management- and/or leveraged buyouts became noted phenomena of 1980s business economics. These so-called MBOs originated in the US, spreading first to the UK and then throughout the rest of Europe. The venture capital industry has played a crucial role in the development of buyouts in Europe, especially in smaller deals in the UK, the Netherlands, and France.
Purchasing is the procurement process a business or organization uses to acquire goods or services to accomplish its goals. Although there are several organizations that attempt to set standards in the purchasing process, processes can vary greatly between organizations.
Business valuation is a process and a set of procedures used to estimate the economic value of an owner's interest in a business. Here various valuation techniques are used by financial market participants to determine the price they are willing to pay or receive to effect a sale of the business. In addition to estimating the selling price of a business, the same valuation tools are often used by business appraisers to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners' ownership interest for buy-sell agreements, and many other business and legal purposes such as in shareholders deadlock, divorce litigation and estate contest.
Commercial property, also called commercial real estate, investment property or income property, is real estate intended to generate a profit, either from capital gains or rental income. Commercial property includes office buildings, medical centers, hotels, malls, retail stores, multifamily housing buildings, farm land, warehouses, and garages. In many U.S. states, residential property containing more than a certain number of units qualifies as commercial property for borrowing and tax purposes.
A franchise disclosure document (FDD) is a legal document which is presented to prospective buyers of franchises in the pre-sale disclosure process in the United States. It was originally known as the Uniform Franchise Offering Circular (UFOC), prior to revisions made by the Federal Trade Commission in July 2007. Franchisors were given until July 1, 2008 to comply with the changes.
The CAMELS rating is a supervisory rating system originally developed in the U.S. to classify a bank's overall condition. It is applied to every bank and credit union in the U.S. and is also implemented outside the U.S. by various banking supervisory regulators.
In alternative investments, operational due diligence (ODD), is an investigation (due diligence) into operational factors of alternative investment entities such as a hedge fund, private equity fund, or infrastructure fund.
Management due diligence is the process of appraising a company's senior management—evaluating each individual's effectiveness in contributing to the organization's strategic objectives.
Pension Led Funding (PLF) is a financial services product offered in the United Kingdom (UK) that raises funds for businesses based upon the use of pension benefits accrued by owners or directors of the business they control. The money can then be used for the provision of a secured commercial loan, the purchase of commercial property, *the purchase of intellectual property assets, or the purchase of share capital.
Ansarada Group Limited (Ansarada) is an Australian publicly listed company (ASX:AND) that develops products used worldwide by companies, advisors, and governments to maintain their most crucial information and processes in deal and transaction management, board management, compliance, and procurement. Ansarada intends to allow organizations to run more efficiently with reduced risk and an increased ability to make fast, confident decisions. Over $1 trillion in deal value has been transacted on the Ansarada platform.
Strategic risk is the risk that failed business decisions may pose to a company. Strategic risk is often a major factor in determining a company's worth, particularly observable if the company experiences a sharp decline in a short period of time. Due to this and its influence on compliance risk, it is a leading factor in modern risk management.
An Initial exchange offering (IEO) is the cryptocurrency exchange equivalent to a stock launch or Initial public offering (IPO). An IEO is the process of digital asset procurement through an established exchange for the purpose of raising capital for start-up companies. Exchanges act as a middleman between investors and the startup, profiting from fees generated by services rendered during the due diligence process and funding phase. IEO's and initial coin offerings (ICO) share similar characteristics with, however, an IEO can be seen as an evolution from the ICO due to legal influence and an increase in financial regulations within the cryptocurrency market.