Commercial Due Diligence

Why Commercial Due Diligence Matters

Traditional financial due diligence misses critical commercial realities-revenue quality, customer concentration, competitive positioning, and GTM capability gaps. PE firms that rely solely on financial analysis often discover post-close that revenue is at risk, growth projections are unrealistic, or commercial capabilities require significant investment.

Without rigorous commercial diligence, firms overpay for assets, miss value creation opportunities, encounter surprises post-acquisition, and struggle to build credible 100-day plans. Management presentations are optimistic; customers tell the real story.

With systematic commercial due diligence, PE firms identify at-risk revenue before closing, quantify addressable growth opportunities, negotiate better purchase prices, build actionable value creation roadmaps, and enter with clear understanding of required commercial investments. Commercial DD typically pays for itself 10-20x through better pricing and value creation.

Key Components

Revenue Quality Assessment

Analyze revenue composition, customer concentration, pricing power, retention rates, and contract terms to understand revenue stability and risk. Not all revenue is created equal.

Customer & Market Validation

Conduct customer interviews, win-loss analysis, and competitive assessment to validate growth thesis and understand market position. Customers reveal truths management won't.

GTM Capability Evaluation

Assess sales effectiveness, marketing efficiency, customer success maturity, and revenue operations sophistication. Identify capability gaps that require investment.

Growth Opportunity Quantification

Size addressable growth opportunities in new markets, customer segments, products, and channels. Build bottoms-up growth models based on realistic assumptions.

Risk Identification

Identify concentration risk, competitive threats, customer churn risk, pricing pressure, and integration challenges. Surface issues before they become surprises.

Value Creation Roadmap

Build prioritized 100-day and first-year value creation plans with specific initiatives, required resources, and expected outcomes. Enter with execution roadmap.

Key Takeaways

• Commercial DD typically identifies $10-30M in at-risk revenue or growth opportunities on $100M revenue businesses
• Customer interviews reveal competitive threats, pricing pressure, and retention risk that management won't disclose
• Most targets have 2-3 significant GTM capability gaps requiring 6-12 months investment to remediate
• Realistic growth models should be 20-30% lower than management projections-account for execution challenges
• Best commercial DD occurs 3-4 weeks before close to inform final negotiations and enable rapid post-close execution