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.

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)

Identifying one-time expenses, owner-related costs, or non-recurring income to find the true underlying profitability.

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.

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.

Determining the "normal" level of capital required to run the business day-to-day to avoid post-close cash surprises.

The Private Equity Playbook: Mastering Company Due Diligence