Operational Due Diligence: 10 Key Questions Private Equity Investors Need to Ask on Every Deal

Operational Due Diligence is increasingly a key component of the private equity diligence playbook.  A thorough assessment of a target’s supply chain, operations and IT infrastructure can provide investors with critical information that informs investment decisions and influences post close strategies.

In today’s competitive market for deals, it’s more important than ever that investors know what they’re buying, and fully understand where hidden risks and opportunities lie.  We’ve compiled a short list of critical questions investors should consider, based on our experience having assessed nearly 1,000 transactions over the last 15 years:

10 Key Operational Due Diligence Questions

  1. Is the target performing at or above benchmarks (inventory, cycle time, etc.)?
  2. Are margins sustainable and is there enough capacity to support the desired growth?
  3. Is the target efficiently deploying capital (working capital and human capital)?
  4. What is the condition of the fixed assets? Is there a risk of unplanned CAPEX?
  5. Is the target underinvested in IT, or are they at risk for unplanned IT investment?
  6. Is the company capable of consistently producing and delivering high quality products that meet known customer expectations?
  7. Are the applications that support critical business functions scalable with the planned growth of the company?
  8. What exposure does the company have to cyberattacks or other existential threats, and do they have plans in place to protect critical processes and intellectual property?
  9. Is the company led by a competent leadership team focused leading and nurturing a continuous improvement culture?
  10. What are the opportunities for operational efficiencies that may lead to margin and working capital improvements?

Click here to learn more about Operational Due Diligence best practices, and to see how we help our clients.

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