due-diligence
Commercial due diligence tests whether the target’s market, customers, pricing power and competitive position support the investment thesis. It is the workstream that challenges growth, not just the historical accounts.
Where financial due diligence asks “are the numbers real?”, commercial due diligence asks “will the numbers continue?” Typical modules include addressable market and growth, customer concentration and churn, win/loss evidence, pricing and mix, competitor intensity, regulation, and the credibility of the plan that sits inside the DCF or the entry multiple.
On a private equity deal, CDD often determines whether the fund will underwrite a growth case, a hold-flat case, or walk. On a strategic buyer deal it tests overlap, channel conflict and whether the combined offering actually exists outside the pitch deck.
Teams interview customers (sometimes double-blind), scrape pricing, map the competitor set, and reconcile management’s pipeline to conversion history. They do not replace legal due diligence on change-of-control clauses, but they will flag if a top customer is rumoured to be dual-sourcing.
A SaaS target shows 28% year-on-year ARR growth. CDD finds that 40% of new logos came from a single partner whose contract expires six months after closing, and that net revenue retention is 96% once a large logo that is already in notice is treated correctly. The financials were tidy. The commercial thesis was not.
Buyers care because commercial risk is how you overpay on a high multiple. Sellers care because a weak CDD narrative invites a price chip that no earnout fully repairs. Management teams care because CDD interviews become the first impression a new owner has of the sales culture.
Confusing a large TAM slide with evidence of access. Letting management select every customer interview. Treating a 12-month pipeline as contracted revenue. Ignoring that a financial buyer and a corporate buyer will read the same market differently.
CDD is judgement under time pressure. Interview samples are biased. Markets move after signing. It will not catch a hidden warranty claim — that is legal and operational due diligence.
Commercial files — customer lists, cohorts, pricing, contracts — are usually the messiest part of a data room. Structuring them once means CDD, valuation and investor matching stop arguing from different extracts.