Commercial Due Diligence

Commercial due diligence (CDD) is the investigation of the strategic and commercial fundamentals of a target company — market positioning, competitive landscape, customer base quality, revenue sustainability and growth drivers — conducted from the acquirer's perspective prior to finalising the acquisition price and structure. While financial due diligence validates the historical numbers, commercial due diligence validates the business plan's commercial assumptions. A CDD typically combines market sizing, customer interviews and churn analysis, competitor benchmarking and an assessment of the business plan's commercial assumptions. Its findings feed directly into valuation: revenue growth and margin hypotheses are confirmed, adjusted or challenged, and commercial red flags often reshape price or deal protections. It is commissioned by acquirers or, in vendor form, prepared ahead of a competitive sale process, with a scope proportionate to deal size.

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Key areas of commercial due diligence include: market sizing and growth dynamics, competitive positioning and differentiators (sustainable competitive advantages vs temporary), client base analysis (concentration, switching costs, Net Promoter Score, renewal rates), pricing power and margin sustainability, sales pipeline analysis and conversion metrics, and management's commercial track record vs plan.

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Commercial due diligence is particularly important in LBO transactions where the business plan projects above-market growth: the CDD must independently validate whether the growth assumptions are credible and whether the competitive dynamics support the projected margin expansion. Overly optimistic CDD findings that are not challenged are a primary cause of LBO underperformance.

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Example: a private equity fund conducting commercial due diligence on a Swiss B2B software company identifies that 65% of revenue comes from one industry sector facing significant regulatory headwinds. This sector concentration risk was not apparent from the financial statements alone and leads to a 0.5x EBITDA multiple haircut in the final offer — a CHF 1.1 million price reduction on a CHF 2.2 million EBITDA business.

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At Hectelion, we integrate commercial due diligence insights into our financial due diligence mandates, providing acquirers with a holistic risk and value assessment.