Commercial due diligence is one of the most frequently commissioned — and most frequently misunderstood — workstreams in M&A. PE funds routinely spend six figures on CDD reports. Many get less value than they should, not because the work is bad, but because the brief was wrong, the scope was too narrow, or the findings arrived too late to influence the deal.
This article is a practitioner’s view of what CDD actually tells you, where it consistently falls short, and what investors should demand from the process to get genuinely decision-useful output.
What CDD Is (and What It Isn’t)
Commercial due diligence assesses the commercial attractiveness and sustainability of a target business. It answers the question: Is this company’s revenue base real, defensible and growing for the right reasons?
A good CDD process will give you a view on market size and growth dynamics, the target’s competitive position and differentiation, customer quality and concentration, pricing power and contract durability, the sustainability of historical growth, and the credibility of the management team’s forward plan.
What CDD is not is financial due diligence. It does not verify the numbers in the accounts. It does not check for fraud, accounting irregularities, or balance sheet manipulation. CDD and FDD are complementary, not interchangeable — and conflating them is one of the most common mistakes in deal processes. CDD tells you whether the market and competitive dynamics support the story. FDD tells you whether the numbers reflect that story accurately.
Where CDD Consistently Falls Short
The market sizing trap. Almost every CDD report opens with a top-down market sizing section. In the vast majority of cases, this section is unhelpful. It tells you the total addressable market is large (it usually is — that’s why someone is acquiring the business) but gives you very little insight into the serviceable market that actually matters for the target. What you need is not a TAM number from an industry report. You need a bottoms-up view of how many potential customers exist, what they spend, and what share is realistically capturable. If your CDD provider is leading with a Gartner or IDC market size estimate and calling it analysis, push back.
Competitor analysis without competitive intelligence. CDD reports routinely describe what competitors do. Far fewer explain how well they do it, what they’re investing in, or where they’re planning to attack the target’s position. The difference between a competitor overview and genuine competitive intelligence is the difference between reading a company’s website and talking to its former employees, customers and channel partners. If your CDD process doesn’t include primary research — expert network calls, customer interviews, channel checks — you are getting a literature review, not diligence.
Customer analysis that stops at concentration. Every CDD report will tell you the percentage of revenue from the top 5, 10 and 20 customers. That’s necessary but insufficient. What matters is why customers buy, how sticky the relationship is, and what would cause them to leave. Switching costs, integration depth, contract renewal patterns, Net Promoter Score trajectories, and the presence of competing procurement processes are all more predictive of future revenue stability than a concentration ratio. The best CDD processes include direct customer referencing — structured interviews with a sample of the target’s customer base, conducted independently and under NDA.
The management plan gets a free pass. CDD reports often assess the management team’s forward plan as ‘ambitious but achievable’ or ‘broadly credible.’ This is rarely useful. What you need is a specific assessment of which assumptions in the plan are supported by market evidence and which are not. If management is projecting 15% revenue growth and the market is growing at 5%, the CDD should tell you exactly where the incremental 10% is supposed to come from — and whether the go-to-market capacity, pipeline and competitive dynamics support it.
What to Demand From Your CDD Provider
Primary research as a non-negotiable. The desk research component of CDD is table stakes. The value comes from primary interviews — with customers, competitors, former employees, industry experts and channel partners. If your CDD provider’s methodology doesn’t include a meaningful primary research programme, the output will lack the texture and specificity that differentiates a good investment from a mediocre one.
A clear view on the investment thesis. The CDD should directly address the specific investment thesis you are underwriting. If your thesis is that the target can expand into adjacent markets, the CDD should assess the size, accessibility and competitive dynamics of those markets specifically. If your thesis is that pricing can be increased post-acquisition, the CDD should assess price sensitivity, competitor pricing and customer willingness to accept increases. A generic commercial assessment that doesn’t engage with your specific thesis is a missed opportunity.
Integration-relevant findings. CDD is often treated as a pre-signing exercise that gets filed away after close. The best CDD processes generate findings that directly inform the 100-day plan and the value creation strategy. Customer feedback on service gaps, competitive intelligence on market shifts, and assessments of the target’s go-to-market effectiveness are all inputs that should flow directly into the post-acquisition operating plan.
Honesty about the risks. The CDD provider is paid by the buyer, but the best ones are willing to deliver uncomfortable findings. If the market is structurally declining, if the target’s competitive moat is narrower than the vendor pitch suggests, or if customer interviews reveal latent dissatisfaction — that information is worth more than any amount of confirmation bias. Demand a CDD provider that will tell you what’s wrong with the deal, not just what’s right with it.
The Practitioner’s View
CDD is not a box-ticking exercise. It is your best opportunity to understand, before you commit capital, whether the commercial foundations of a business are as strong as the vendor and management team claim. The funds that get the most value from CDD are the ones that brief it tightly against their specific thesis, insist on primary research, and use the findings not just to inform the bid but to build the post-acquisition value creation plan.
The funds that get the least value are the ones that commission CDD late, scope it generically, and treat the report as a confirmatory document rather than an investigative one. If you find yourself reading a CDD report that tells you everything you already knew, the problem isn’t the report. It’s the brief.
Aethon Ventures provides management consulting to PE/VC funds, mid-market businesses and corporate development teams across Growth, Profitability, M&A and Transformation. London-based with consulting partnerships in India and Malaysia.
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