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Operational Due Diligence Checklist

Operational Due Diligence Template

Investors and businesses planning on entering an acquisition procedure to purchase another company need to be informed on facts focused on the operational structure and measures that the target company is undertaking.

This operational information can be divided into several important business categories that Operational Due Diligence is focused on investigating:

  • Financial review of the company
  • Review of the target company’s strategies and plans
  • Operational observation
  • Identification of operational risks and faults
  • Improved operational strategy plan
  • Communication regarding conducted Due Diligence and future improvement consideration

Daily Activities of Operational Due Diligence

The estimated duration of Operational Due Diligence when you are purchasing a company is 5-10 days, during which all of the following should be requested:

  • On-Site visitation and estimation of the company organization
  • Basic business information and routines (to be supplied to your evaluator for estimation)
  • Financial documents for the last 5 years
  • Strategic documents for the last 5 years
  • Executive leadership review of the company
  • On-Site operational investigation to be conducted in duration of at least 3 days
  • Review of capacity studies and manufacturing processes of the target company
  • An Operational Due Diligence Package (to be created by your consultant or evaluator)
  • The scheduling of a communication meeting (after the creation of the operational due diligence package) for both sides to agree on the Due Diligence results

What Tasks Does the Operational Due Diligence Checklist Include

Organizational Structure

The first and most important information regarding the company you are targeting needs to contain organization data in terms of how the entire company works and specifically what assignments are required from each member of personnel.

  • The target company needs to supply a review report for the last 5 years if such reports were conducted
  • The target company is obligated to describe the current ownership construction of the company
  • If the owners are legal entities, additional information regarding beneficial ownership is required
  • The target company should supply records of how long has the company been involved in the current business
  • If during the last 5 years a corporate structure of the company has been changed, the additional operational report is required about these changes
  • The target company is obligated to provide copies of any previous operational and financial audits of the company if conducted in the last 3 years
  • Copies of all the previous annual reports of the company are required
  • Organizational structure diagram of the company needs to be provided, showing all of the key personnel for specific business areas
  • Total number of the company’s CEO’s
  • Total number of the company's employees and staff

Insurance Relevant Items Needed

This category should contain all of the company’s insurance types and information.

  • Copies of insurance policies
  • Provider details
  • Fidelity insurance policy
  • Fraud and computer crime policy
  • Workers compensation policies
  • Any insurance claims present over the past 5 years

Needed Items Regarding Staff of the Target Company

This category explains which reports and reviews you should acquire from the target company based on its staff and its workforce.

  • Current personnel information about previous employments and interests
  • Skills, experience, and length of service information of the employees
  • HR staff reports and information about the area of expertise and key responsibilities in the company
  • Report on the recruitment process and matters
  • An overview of staff training and developments as well as how these activities occur within the target company
  • Criteria used for personal worker assessment
  • Annual leave policy
  • What has been the turnover rate among the employees of the company?
  • Employee turnover rate for the last 3 years
  • Background check policy and reference check procedures

Items Regarding Governance of the Company

This category is focused on getting all the information regarding leaders of the company as well as its board members.

  • Total number of board members of the company as well as relevant details regarding the board
  • Overview of the full responsibilities of the board members
  • Overview of all Board Sub-Committees and the crucial management committees within the governance structure
  • Description of the corporate governance framework as well as a diagram presentation of a governance structure of the target company
  • An illustration of board committees

Policies Items for Audit

This category contains instructions about how the company’s policies should be organized.

  • Copies of the applicable policies (which are required for audit)
  • Beneficial policies review
  • Fraud and corruption policies review
  • Privacy policies, including client confidentiality
  • Risk management policies
  • Investment allocation policies
  • Conflicts of interests policies and counterparty exposure monitoring

Risk Handling Items Required

This part describes how a normal risk-free company should be established.

  • Ask to be provided with the Risk Register if the target company has it in place
  • Selling side needs to provide you with the overview and team structure of the Risk Management Team
  • Ask to be supplied with the brief Risk Management Framework, which each company should have established
  • Find out who is responsible for the maintenance of the Risk Register
  • Ask to be provided with the details of how the company copes with external risk matters
  • Find out how the target addresses the issue of operational risk
  • The target company is obligated to provide you with the details on who maintains and owns the authorized signatory list for the company

Pre-Acquisition Compliance Items

Additional list of the last steps of due diligence to be conducted before the acquisition.

  • Ask to be supplied with information about the process for the setup of pre-trade compliance rules
  • Ask for the description of the process to override any breaches as part of the pre-trade compliance - note: you are obligated to have confirmation that the pre-trade compliance processes exist
  • Ask the target company to provide you with the workflow process for the handling of compliance rule breaches

Conclusion

As the finishing touch of Operational Due Diligence, a few additional points need to be investigated and secured before the acquisition process begins:

  • A review of cash flow management
  • An OTC derivative system usage review
  • A review of administration and cash reconciliation of internal records
  • An established daily post-trade compliance for your newly purchased company
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Operational Due Diligence Checklist

Operational Due Diligence Template

Investors and businesses planning on entering an acquisition procedure to purchase another company need to be informed on facts focused on the operational structure and measures that the target company is undertaking.

This operational information can be divided into several important business categories that Operational Due Diligence is focused on investigating:

  • Financial review of the company
  • Review of the target company’s strategies and plans
  • Operational observation
  • Identification of operational risks and faults
  • Improved operational strategy plan
  • Communication regarding conducted Due Diligence and future improvement consideration

Daily Activities of Operational Due Diligence

The estimated duration of Operational Due Diligence when you are purchasing a company is 5-10 days, during which all of the following should be requested:

  • On-Site visitation and estimation of the company organization
  • Basic business information and routines (to be supplied to your evaluator for estimation)
  • Financial documents for the last 5 years
  • Strategic documents for the last 5 years
  • Executive leadership review of the company
  • On-Site operational investigation to be conducted in duration of at least 3 days
  • Review of capacity studies and manufacturing processes of the target company
  • An Operational Due Diligence Package (to be created by your consultant or evaluator)
  • The scheduling of a communication meeting (after the creation of the operational due diligence package) for both sides to agree on the Due Diligence results

What Tasks Does the Operational Due Diligence Checklist Include

Organizational Structure

The first and most important information regarding the company you are targeting needs to contain organization data in terms of how the entire company works and specifically what assignments are required from each member of personnel.

  • The target company needs to supply a review report for the last 5 years if such reports were conducted
  • The target company is obligated to describe the current ownership construction of the company
  • If the owners are legal entities, additional information regarding beneficial ownership is required
  • The target company should supply records of how long has the company been involved in the current business
  • If during the last 5 years a corporate structure of the company has been changed, the additional operational report is required about these changes
  • The target company is obligated to provide copies of any previous operational and financial audits of the company if conducted in the last 3 years
  • Copies of all the previous annual reports of the company are required
  • Organizational structure diagram of the company needs to be provided, showing all of the key personnel for specific business areas
  • Total number of the company’s CEO’s
  • Total number of the company's employees and staff

Insurance Relevant Items Needed

This category should contain all of the company’s insurance types and information.

  • Copies of insurance policies
  • Provider details
  • Fidelity insurance policy
  • Fraud and computer crime policy
  • Workers compensation policies
  • Any insurance claims present over the past 5 years

Needed Items Regarding Staff of the Target Company

This category explains which reports and reviews you should acquire from the target company based on its staff and its workforce.

  • Current personnel information about previous employments and interests
  • Skills, experience, and length of service information of the employees
  • HR staff reports and information about the area of expertise and key responsibilities in the company
  • Report on the recruitment process and matters
  • An overview of staff training and developments as well as how these activities occur within the target company
  • Criteria used for personal worker assessment
  • Annual leave policy
  • What has been the turnover rate among the employees of the company?
  • Employee turnover rate for the last 3 years
  • Background check policy and reference check procedures

Items Regarding Governance of the Company

This category is focused on getting all the information regarding leaders of the company as well as its board members.

  • Total number of board members of the company as well as relevant details regarding the board
  • Overview of the full responsibilities of the board members
  • Overview of all Board Sub-Committees and the crucial management committees within the governance structure
  • Description of the corporate governance framework as well as a diagram presentation of a governance structure of the target company
  • An illustration of board committees

Policies Items for Audit

This category contains instructions about how the company’s policies should be organized.

  • Copies of the applicable policies (which are required for audit)
  • Beneficial policies review
  • Fraud and corruption policies review
  • Privacy policies, including client confidentiality
  • Risk management policies
  • Investment allocation policies
  • Conflicts of interests policies and counterparty exposure monitoring

Risk Handling Items Required

This part describes how a normal risk-free company should be established.

  • Ask to be provided with the Risk Register if the target company has it in place
  • Selling side needs to provide you with the overview and team structure of the Risk Management Team
  • Ask to be supplied with the brief Risk Management Framework, which each company should have established
  • Find out who is responsible for the maintenance of the Risk Register
  • Ask to be provided with the details of how the company copes with external risk matters
  • Find out how the target addresses the issue of operational risk
  • The target company is obligated to provide you with the details on who maintains and owns the authorized signatory list for the company

Pre-Acquisition Compliance Items

Additional list of the last steps of due diligence to be conducted before the acquisition.

  • Ask to be supplied with information about the process for the setup of pre-trade compliance rules
  • Ask for the description of the process to override any breaches as part of the pre-trade compliance - note: you are obligated to have confirmation that the pre-trade compliance processes exist
  • Ask the target company to provide you with the workflow process for the handling of compliance rule breaches

Conclusion

As the finishing touch of Operational Due Diligence, a few additional points need to be investigated and secured before the acquisition process begins:

  • A review of cash flow management
  • An OTC derivative system usage review
  • A review of administration and cash reconciliation of internal records
  • An established daily post-trade compliance for your newly purchased company
FAQ

Can I change requests in this checklist or add new?

Every M&A and due diligence process is different. Downloaders are urged to make these checklists their own by changing the providing information to better fit their needs.

Does this questionnaire provide all the necessary due diligence information?

This due diligence questionnaire was created by and for M&A professionals and includes a comprehensive starting point for any diligence process. Every deal is different, however, and may require additional requests or diligence areas.

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