While financial diligence looks back, ODD looks forward. It assesses whether the company can actually scale and deliver the growth projected in the investment thesis.
Identifying one-time expenses, owner-related costs, or non-recurring income to find the true underlying profitability.
The Private Equity Playbook: Mastering Company Due Diligence Private Equity Company Due Diligence
In the world of Private Equity (PE), due diligence is the high-stakes period where a potential deal is either validated or dismantled. It is a rigorous, multi-disciplinary investigation that typically occurs after a Letter of Intent (LOI) is signed, lasting anywhere from . For PE firms, this isn’t just a "checkbox" exercise—it's the foundation for your entire post-close value creation plan. 1. Financial Due Diligence: The Quality of Earnings (QoE)
Determining the "normal" level of capital required to run the business day-to-day to avoid post-close cash surprises. While financial diligence looks back, ODD looks forward
2. Operational Due Diligence (ODD): Testing the Value Thesis
Analyzing customer concentration (e.g., top 10 customers), churn rates, and whether revenue is recurring or one-time. The Private Equity Playbook: Mastering Company Due Diligence
This is the cornerstone of any PE deal. Unlike standard audits, PE financial diligence focuses on the "run-rate" of the business to ensure the price paid is fair.