What operational due diligence covers — supply chain, IT, headcount, procurement — and how ODD findings land on the EBITDA bridge, capex split and synergy case alongside FDD.
Two businesses report identical EBITDA of £20m. On paper they are worth the same. One runs on a modern ERP, a dual-sourced supply chain and a right-sized workforce. The other is held together by a founder's spreadsheets, a single supplier in a volatile geography, and five years of deferred investment that will land as cash calls the moment the deal closes. The management accounts don't reveal that difference — the operations do. Operational due diligence (ODD) is the workstream that lifts the bonnet, and for any buyer planning to integrate, improve or carve out a target, it is where a large share of the value case is actually proven or destroyed.
Here's why it matters to you specifically. ODD doesn't stay in its own report. Its findings land directly on the EBITDA bridge and the capex line you own as a Transaction Services analyst. A deferred-maintenance finding becomes your capex forecast. A procurement saving becomes your run-rate adjustment. Understanding that hand-off is what makes you useful to the deal team rather than a scorekeeper.
ODD assesses how the business runs day to day and whether those operations can support the plan the buyer is paying for. A typical scope spans:
The output is a view on operational risk and operational opportunity — what could break, what it would cost to fix, and what improvement is realistically achievable and in what timeframe.
Rule of thumb: if the value thesis depends on making the business better rather than just owning it as-is, ODD is not optional — it is where the thesis gets stress-tested.
A great deal of the value in a transaction — particularly for private equity or a strategic acquirer — rests on a cost or synergy thesis: procurement savings, headcount rationalisation, site consolidation, automation. ODD exists in large part to test whether those savings are real and deliverable, not just plausible on a slide.
This matters because synergies are usually the thinnest, most optimistic part of a buyer's case. ODD separates three things the model tends to blur together:
A credible ODD turns a one-line synergy assumption into a costed, phased plan with an investment requirement attached. "£3m of procurement savings" becomes "£3m run-rate, phased over 18 months, requiring £0.8m of one-off cost and a new category manager" — which is a number FDD can actually put in a bridge.
ODD and FDD work most closely together in a carve-out. When a buyer acquires a division that has never run on its own, someone has to build the standalone cost base function by function — and that is fundamentally an operational exercise. ODD determines what the business operationally needs to stand alone: its own ERP, IT environment, procurement function, finance back office. FDD translates that into the standalone cost build and pro forma EBITDA bridge.
The two have to be consistent, or the number is wrong. If ODD says the carved-out business needs a new ERP and a 12-person finance team, FDD must reflect that standalone run-rate cost and the one-off implementation capex. A bridge built without the operational view will understate the true cost the buyer inherits — and the buyer discovers it after completion, which is the worst possible time.
Let's make the hand-off concrete. Take a manufacturer with £22.0m of reported EBITDA. ODD runs its scope and returns four findings. Watch how each one moves the run-rate number FDD reports.
| ODD finding | Nature | EBITDA impact |
|---|---|---|
| Reported EBITDA (starting point) | — | £22.0m |
| Procurement: consolidate two suppliers | Run-rate saving | +£1.8m |
| Overstaffing in indirect functions | Cost normalisation | +£1.2m |
| Standalone IT costs (currently shared) | Dis-synergy on carve-out | (£1.5m) |
| Deferred maintenance now run-rate | Cost normalisation | (£0.9m) |
| Adjusted run-rate EBITDA | £22.6m |
Notice what happens. A naïve buyer, reading only the synergy slide, would take £22.0m and add £3.0m of savings to reach £25.0m. The real picture, once ODD surfaces the dis-synergy and the deferred maintenance, is £22.6m — a £2.4m gap on the run-rate, which at 9x EBITDA is over £20m of price. And this is before the capex story, which lands separately:
| Capex finding | Classification |
|---|---|
| ERP replacement for standalone operation | One-off / separation capex |
| Catch-up on deferred plant maintenance | Elevated near-term maintenance capex |
| New line for growth plan | Growth capex |
The insight: synergies and dis-synergies are the same conversation. Any ODD that hands you savings without also handing you the costs of achieving them and the costs of separation is selling you half the picture.
Generalising from that example, ODD doesn't stay in its own report — it lands on the numbers you own. Here is the mapping every TS analyst should internalise:
| ODD finding | Where it lands |
|---|---|
| Deferred maintenance, ageing assets | Maintenance capex and capex forecast |
| Procurement savings | EBITDA bridge (run-rate adjustment) |
| Overstaffing / understaffing | EBITDA bridge (cost normalisation) |
| ERP replacement needed | One-off / separation capex |
| Single-supplier dependency | Risk note, possible price chip |
| Site consolidation cost | One-off cash item, debt-like consideration |
The cleanest way to see it: FDD builds the EBITDA bridge, and ODD supplies several of the most important adjustments to it — above all the line between maintenance capex (needed just to keep running) and growth capex (discretionary investment). Get that split wrong and the cash-generative quality of the business is misstated, because a seller who under-invested reports strong cash flow that the buyer cannot sustain. ODD findings also frequently surface as red flags the buyer prices into the SPA.
Of the six areas ODD covers, IT is the one buyers most often treat too lightly — and the one that generates the ugliest post-completion surprises. A target's finance team can present tidy accounts on top of a technology estate that is quietly a liability. Three failure modes recur.
The first is technical debt masquerading as a working system. The ERP boots up and processes orders, so nobody questions it — but it is a version two releases out of support, customised beyond recognition, maintained by one contractor, and incapable of handling the transaction volumes the growth plan assumes. The near-term cost to replace or re-platform it is real capex, and it belongs in the model whether or not the buyer wants to hear it.
The second is cyber posture. Weak controls, no meaningful incident history because nobody was monitoring, unpatched systems and poor access governance are not just operational risks — a breach post-completion is a cash event, a regulatory event and a reputational event all at once. Increasingly, buyers treat a serious cyber finding the way they treat an environmental one: as a potential provision or an indemnity in the SPA.
The third is scalability. Systems sized for today's business may not carry the buyer's plan. If the thesis is to double revenue, the question is whether the IT estate scales with it or caps it — and if it caps it, the uplift cost is part of the price of the growth story.
Rule of thumb: treat "the system works" as the beginning of the IT question, not the answer. Working today says nothing about supportable, secure or scalable tomorrow.
ODD does not stop at the bridge. Once a finding is sized, it has to be handled — and there are only a few places it can go. Understanding those destinations is what lets a TS analyst take the operational story all the way through to the deal terms rather than dropping it into a report.
The discipline is to make sure every material ODD finding lands somewhere deliberate. A finding that is neither priced, nor booked, nor covered in the SPA, nor scheduled for post-completion action is a finding the buyer has effectively decided to absorb for free — usually by accident.
ODD is not run on every deal. It is most common when:
For asset-light or simple businesses, buyers may fold a lighter operational lens into the FDD process rather than commission a full standalone workstream. ODD is typically delivered by specialist operational or strategy teams, frequently within the same advisory firms that span Big 4 and boutiques.
Timing also matters. On a primary buyout the buyer commissions ODD as part of its own diligence; on a sale process the seller may have prepared an operational vendor due diligence report to give bidders confidence and reduce the friction of a competitive process. Either way, ODD is most valuable early enough to influence the bid, not as a confirmatory exercise after the price is fixed — by then the operational risks have already been paid for.
Some patterns recur across ODD engagements and are worth recognising, because each carries a financial consequence that belongs in the model:
Each of these, left unpriced, quietly turns a good-looking EBITDA multiple into an expensive mistake.
ODD is a strong topic to raise because it shows you think beyond the trial balance — that you understand value lives in operations, not just accounts. Interviewers reward candidates who can connect the operational story to the financial output rather than treating ODD as someone else's report.
"Operational due diligence looks at how the business runs — supply chain, IT, headcount, procurement — and tests whether the buyer's cost and synergy case is actually deliverable. For me as an FDD analyst, the key link is the bridge. ODD tells me which costs are genuinely removable, what one-off investment those savings require, what capex has been deferred, and what standalone cost a carve-out inherits — say an ERP replacement and a new finance function. I'd translate those into the EBITDA bridge and the maintenance-versus-growth capex split, and I'd make sure any dis-synergies are netted against the savings, because a synergy number without its cost to capture isn't a real number."
That answer demonstrates exactly the commercial and operational awareness that sits among the hard skills TS teams value, and it reinforces why TS is a different role from audit.
EBITDA tells you what the business earned. Operations tell you whether it can keep earning it — and what it will cost to make it earn more. The analyst who can take an ODD finding and land it, correctly, on the right line of the bridge or the capex forecast is the one the deal team stops treating as a checker and starts treating as a partner. That translation is the job.
The Transaction Services Interview Programme (€119.99, one-time) includes worked examples of translating operational due diligence findings into the EBITDA bridge, the maintenance-versus-growth capex split and the carve-out standalone cost build. Enrol today.
Hundreds of candidates prepared their interviews with this programme. Those who landed the role have one thing in common: they worked the cases before walking into the room.
