The key to success in operational due diligence: A framework for practitioners Chris Berg Porsgaard*,a,1, Mathias Haubjerg*,b,2, Zaza Nadja Lee Herbert-Hansenc,3 a,b,cDepartment of Management Engineering, Technical University of Denmark, Produktionstorvet Bygning 426, Kgs. Lyngby 2800, Denmark Abstract Operational due diligence is an essential step in the acquisition decision process when private equity firms assess whether a target company can realize future performance expectations. The scope of this paper is to identify operational due diligence determinants and develop a normative framework to support acquisition practitioners in the due diligence process. A structured and comprehensive literature review within the field of operational due diligence, were carried out with emphasis on identification of operational determinants. In addition, interviews and a survey questionnaire helped establish an empirical foundation for the research leading to novel findings. This paper presents five operational drivers all considered as having direct influence on the operational part of an acquisition decision, which are identified across extant literature and empirical data. The operational drivers are structured in a supply chain based framework to simplify the practical application. Furthermore, the five drivers collectively comprise 20 sets of analyses and determinants specifically for addressing each operational driver hypothesis. Through the literature review, a significant research gap is identified for both the operational due diligence framework and the underlying components influencing the acquisition decision. However, empirical data supplemented the literature and helped establish the operational due diligence framework and associated application procedure. Most research within mergers and acquisitions, and due diligence focus on either the legal, financial, or strategic aspects of the acquisition decision made when an acquirer purchases a target company. Hence, this paper suggests a normative framework for assessing the operational drivers, limitations and improvement potentials, about performing a successful operational due diligence. Keywords: Operational due diligence; Due diligence framework; Pre-Acquisition assessment 1. Introduction The number of mergers and acquisitions (M&A) has over the last five years increased greatly (Institute of Mergers, Acquisitions and Alliances, 2016), while the overall success rate of M&A activity has remained low (Sher, 2012). The firm instigating the acquisition often fail to identify the acquisition target’s ability to improve their current operational setup and ability to support the growth projections early in the due diligence process. This problem is caused by a lack of sufficient understanding of the target company’s operating model and cost structure (Christensen, 2011). * Joint first author: 1 Tel.: + 45-51593925, Email: s104231@student.dtu.dk 2 Tel.: + 45-51803550, Email: s120071@student.dtu.dk 3 Tel.: + 45-45254440, Email: znlh@dtu.dk
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