Commercial Due Diligence for Healthcare
Why Healthcare CDD Matters for Investors
PE firms that skip rigorous commercial diligence overpay for assets or inherit growth plans that can't execute. They discover post-close that the "high-growth" company was actually a turnaround. The "defensible" competitive position was eroding. The sales organization lacked the capability to scale. The customer base was at risk.
Comprehensive healthcare CDD prevents these mistakes. It validates market opportunity with bottoms-up analysis. It tests growth assumptions against customer interviews and sales data. It assesses competitive positioning through win/loss analysis. It evaluates sales force capability with productivity modeling. The result is clear investment theses grounded in evidence, accurate valuation, and post-close value creation plans that work.
Healthcare Commercial Due Diligence Framework
Market Assessment
Validate total addressable market with bottoms-up analysis of provider segments, patient populations, and procedure volumes. Assess competitive landscape, technology trends, and regulatory changes. Test management's growth assumptions.
Sales Force Effectiveness
Analyze sales productivity, territory structure, and rep capability. Model sales capacity and ramp time. Evaluate sales process maturity, pipeline management, and forecast accuracy. Identify organizational gaps that limit growth.
Customer Analysis
Assess customer concentration, cohort retention, and churn trends. Conduct reference calls to validate value proposition. Analyze customer segmentation and expansion potential. Understand buying committee dynamics and procurement processes.
Churn & Retention Risk
Model customer lifetime value and retention economics. Identify at-risk customers and revenue concentration. Assess contract terms, switching costs, and competitive threats. Quantify downside scenarios for investment modeling.
Growth Scalability
Test feasibility of management's growth plan. Model required investment in sales, marketing, and product. Assess geographic expansion potential and channel strategy. Identify operational bottlenecks that constrain scaling.
Regulatory & Reimbursement
Analyze reimbursement landscape and payor coverage. Assess regulatory compliance and approval pathways. Evaluate clinical evidence requirements and quality metrics. Model impact of reimbursement changes on unit economics.
Key Takeaways
- • Healthcare CDD must validate market size with bottoms-up analysis-management teams consistently overstate TAM and serviceable market
- • Sales force effectiveness analysis reveals growth capacity-productivity trends, ramp time, and territory design determine scalability
- • Customer concentration creates deal risk-dependence on a few health systems threatens retention and valuation assumptions
- • Win/loss analysis tests competitive positioning-management claims about differentiation must be validated with buyer feedback
- • Reimbursement risk is critical in healthcare-payor coverage, coding requirements, and policy changes impact unit economics
- • Post-close value creation plans must address gaps identified in CDD-sales capability, process maturity, and market positioning