CaseMark Conducting Buyout Operational Diligence
When To Use
- Pre-LOI screening to size operational risk and value-creation potential before committing resources
- Post-LOI / exclusivity period for deep-dive operational assessment across the target's functions
- Management buyout or sponsor-to-sponsor secondary where operator quality is the core thesis driver
- Add-on acquisition diligence to evaluate integration complexity and synergy capture feasibility
- Growth equity investments where scaling operations (not just revenue) is central to the underwriting
Inputs To Gather
- Financial data: Trailing 3-year P&L with cost-center detail, bridge from GAAP to adjusted EBITDA, capex schedules
- Organizational charts: Full org chart with reporting lines, open headcount, and contractor/temp labor breakdown
- Management bios and employment terms: Key person agreements, non-competes, retention arrangements
- IT/systems inventory: ERP, CRM, WMS, HRIS platforms; license types, contract expiry dates, integration architecture diagram
- Process documentation: SOPs for core workflows (order-to-cash, procure-to-pay, production/fulfillment); any ISO/quality certifications
- Customer and supplier data: Top-20 customer concentration, contract renewal schedule, top-10 supplier spend and single-source dependencies
- KPI/dashboard packages: Management reporting cadence, tracked metrics, historical performance vs. targets
- Site visit access: Facility tours, floor-level walk-throughs, frontline supervisor interviews
- Prior diligence reports: Quality of earnings, commercial DD, insurance, environmental (for cross-referencing)
Workflow
1. Scope and Hypothesis Framing
- Define the operational thesis: what must be true operationally for the deal to work at underwritten returns
- Identify top 3-5 risk areas and top 3-5 value-creation levers based on the CIM and preliminary data
- Assign workstreams (management/people, processes/KPIs, technology/systems, facilities/supply chain)
- Set the diligence timeline and milestone gates aligned with exclusivity deadlines
2. Management and Organizational Assessment
- Evaluate the CEO/COO and direct reports against the 100-day plan requirements — do they have the capability and willingness to execute post-close?
- Map organizational gaps: missing VP-level roles, founder dependency, key-person concentration risk
- Assess bench strength one level below the C-suite; identify flight risk and retention cost estimates
- Score management on strategic clarity, operational cadence, and data-driven decision-making maturity
- Flag any misalignment between management incentives and the sponsor's value-creation plan
3. Process Maturity and KPI Review
- Walk each core business process end-to-end: order-to-cash, procure-to-pay, production/fulfillment, customer support
- Rate process maturity on a 1-5 scale (ad hoc → optimized) and document evidence for each rating
- Identify manual workarounds, tribal knowledge dependencies, and single-point-of-failure steps
- Benchmark operational KPIs (fill rate, cycle time, defect rate, customer NPS, employee turnover) against industry comps [VERIFY sector-specific benchmarks]
- Quantify the gap between current performance and best-in-class — this forms the basis for the value-creation bridge
4. Technology and Systems Review
- Map the tech stack: core ERP, bolt-on applications, custom scripts, spreadsheet-based shadow systems
- Assess system scalability: can current platforms support 2x revenue without re-platforming?
- Evaluate data integrity — reconcile system-reported metrics against source data; flag discrepancies
- Estimate technical debt: deferred upgrades, end-of-life platforms, unpatched security vulnerabilities
- Size the IT capital plan required in the first 12-24 months post-close (ERP migration, integration tooling, cybersecurity hardening)
5. Supply Chain and Facility Assessment
- Analyze supplier concentration risk: revenue-weighted single-source exposure, lead-time volatility, geographic risk
- Review facility utilization, capacity headroom, lease terms, and deferred maintenance backlog
- Assess logistics network efficiency: freight cost per unit, warehouse throughput, last-mile delivery performance
- Identify near-term supply chain wins (procurement consolidation, freight lane optimization, inventory policy changes)
6. Value-Creation Bridge Construction
- Consolidate findings into a quantified value-creation bridge: EBITDA impact, capital required, timeline, and execution difficulty for each initiative
- Rank initiatives by risk-adjusted return and implementation complexity (quick wins vs. structural improvements)
- Stress-test the bridge: what is the downside case if only 50% of identified savings materialize?
- Map each initiative to an accountable owner and a first-100-days milestone
Output
Deliver a structured Operational Due Diligence Report containing:
- Executive Summary — Investment-grade narrative: operational thesis, top risks, total value-creation opportunity sized in EBITDA terms
- Management Scorecard — Individual assessments of key leaders with retention/replacement recommendations
- Process Maturity Matrix — Function-by-function ratings with supporting evidence and gap descriptions
- Technology Assessment — Current-state architecture, scalability verdict, and recommended IT capital plan
- Supply Chain & Facilities Summary — Concentration risk heat map, capacity analysis, and logistics optimization opportunities
- Value-Creation Bridge — Waterfall chart with initiative-level detail: run-rate EBITDA uplift, one-time cost, timeline, confidence level
- Risk Register — Prioritized operational risks with likelihood/impact scoring and proposed mitigants
- 100-Day Roadmap — Sequenced action plan for the first post-close quarter, tied to bridge initiatives
Quality Checks
- Every quantified savings estimate traces back to a documented source (management interview, data room file, site observation) — no unsupported numbers
- Management assessments are corroborated by at least two data points (interview, reference, KPI performance)
- Value-creation bridge totals reconcile to the EBITDA impact shown in the investment memo
- All jurisdiction- or regulation-dependent assumptions (labor law, environmental compliance, trade/tariff exposure) are marked [VERIFY]
- Report explicitly states scope limitations: functions not reviewed, data not provided, sites not visited
- Findings are cross-referenced against the quality-of-earnings report for consistency on add-backs and normalized costs
- Sensitivity analysis is included showing deal returns at 50%, 75%, and 100% of identified operational improvements