The Rise of Operational and Working-Capital Due Diligence in 2025 --
Jan 19, 2026
Private equity firms in 2025 are placing much stronger emphasis on operational and working-capital diligence as value creation shifts from financial engineering to true operational improvement.
Why This Shift Is Happening
- Higher cost of capital: With interest rates no longer at historic lows, firms can’t rely on heavy leverage to drive returns. Operational improvements now play a bigger role in value creation.
- Tighter deal competition: More bidders mean buyers need deeper insight into real operating performance. This helps them price deals confidently and avoid overpaying.
- Greater scrutiny on earnings quality: Regulators and lenders are closely examining earnings adjustments. Normalized working capital has become crucial for validating true EBITDA and sustainable cash flow.
Key Focus Areas in Working-Capital Diligence
- Cash conversion cycles: Diligence teams analyze how quickly revenue turns into cash to determine liquidity strength. A faster cycle signals stronger operational efficiency and lower cash burn risk.
- Inventory & receivables health: Teams evaluate inventory accuracy, turnover, aging of receivables, and potential write-offs. This helps uncover hidden cash traps or overstated balance sheet values.
- Supplier and contract dependencies: Assessing concentration risk and contract terms reveals vulnerabilities in supply stability. It also identifies renegotiation opportunities to improve margins and cash flow.
Key Focus Areas in Operational Diligence
- Supply chain resilience: Buyers evaluate how exposed the company is to disruptions and where efficiency gaps exist. Strong resilience supports sustainable growth and reduces execution risk.
- Cost structure optimization: Diligence uncovers both immediate cost-saving opportunities and long-term efficiency levers. This helps build stronger post-close value-creation plans.
- Digital maturity & scalability: Teams assess system quality, automation levels, and tech readiness for expansion. Higher digital maturity typically leads to better scalability and operating leverage.
Operational and working-capital diligence has become a competitive advantage—enabling sharper valuations, stronger post-close plans, and lower execution risk.