Commercial due diligence

Questions to test with customers, competitors, and industry experts

A commercial due diligence checklist should help a deal team test whether the evidence supports an acquisition's investment case. The value comes from connecting each question to a forecast assumption, identifying the right source and explaining what the answer changes.

For private-equity (PE) investors, corporate buyers and their advisers, this means looking beyond the information a target provides. Customers, channel partners, and industry operators can help explain the commercial conditions behind management's plan.

The checklist below covers the commercial research workstream. It is designed to sit alongside financial, legal, tax, and other specialist diligence, with Third Bridge's expert insights supporting the questions that require industry perspective.

What commercial due diligence covers

Commercial due diligence examines a target's market, competitive position, customer relationships, and growth prospects. It asks whether the business can achieve the performance assumed in the investment case and which developments could undermine it.

Financial diligence may identify how revenue and earnings have been recorded. Commercial research investigates the demand, purchasing behaviour, and competitive conditions that could influence future performance. The two workstreams need to inform one another.

Start with the investment thesis and the forecast. Identify which assumptions have the greatest influence on the outcome, then use the checklist to prioritise evidence gathering.

The checklist at a glance

Test market demand at the level the target serves

A large total market can conceal a much narrower opportunity. Define the target's actual customer segment, product use case, and geography before applying market growth estimates.

Questions to investigate include:

• What triggers a purchase and which budget funds it?
• Which parts of the market are expanding or contracting?
• How much demand reflects replacement, new adoption or temporary conditions?
• What prevents a potential customer from buying?

Third Bridge's Library provides existing company and sector interviews. These can help a team frame the market questions that need testing before it commissions additional primary research.

The output should connect the relevant demand drivers to the target's forecast. If the business serves a mature subsegment, a broader industry's growth rate needs further justification before it becomes a model assumption.

Examine the reasons behind customer retention

Retention figures show an outcome. Research should help explain the behaviour behind it. Customers may stay because the product performs well, because switching is difficult or because they have not yet reviewed alternatives.

Ask what led to the original purchase, how the service performs against expectations and what events trigger a supplier review. Where appropriate access is available, include perspectives from customers with different tenure, size, and experience rather than relying only on the strongest references.

In the company's data, distinguish retained revenue from retained customers and separate expansion from price increases. In interviews, distinguish satisfaction from willingness to renew. A customer can value a service while still reducing spending.

Record which parts of the customer base remain unrepresented in the research. Those gaps affect how broadly the findings can be applied.

Test competitive position through buying decisions

An assertion of differentiation becomes more useful when it explains why a buyer selected the business over an alternative.

Investigate the shortlist, selection criteria, procurement process, and switching requirements. Consider whether the target competes against other providers, an internal team, or the decision to postpone the purchase.

The relevant expert may be a former commercial leader, a customer, or a channel participant. Third Bridge's expert calls allow teams to request profiles aligned with the specific commercial question and market segment.

A senior title is useful only where the person's experience matches the question. Someone familiar with enterprise procurement may have limited insight into smaller customers buying through a distributor.

Assess pricing power through customer behaviour

Separate announced increases from realised prices. Review discounts, contract terms, and changes in product or customer mix before concluding that revenue growth reflects pricing power.

Research questions should examine how buyers assess value, when they negotiate, and what would cause them to reduce usage or switch. Ask how responses differ across customer groups rather than assuming a single market-wide reaction.

Where the question concerns the distribution of attitudes across a defined audience, Third Bridge Surveys can support a broader research programme. Interviews can help develop the questions; survey design and respondent selection determine how the resulting evidence should be interpreted.

Check whether the route to market can support the plan

Sales growth depends on more than the size of the opportunity. Examine the steps between identifying a prospect and delivering revenue.

• Who originates the opportunity and owns the customer relationship?
• What determines sales-cycle length and conversion?
• How dependent is the business on distributors or referral partners?
• What installation, staffing or onboarding work follows a sale?
• Where could delivery capacity constrain growth?

Connect those questions to the company's funnel and operating data. If the model assumes more salespeople produce proportionate growth, investigate ramp-up time, lead availability, and the capacity to serve new customers.

An illustrative diligence question about recurring revenue

Consider a hypothetical acquisition of a specialist maintenance provider. The investment case assumes customers renew because the service is essential to their operations.

A deal team could begin with sector interviews to understand procurement and service requirements. It could then brief targeted conversations around the circumstances in which customers rebid a contract, bring work in-house, or change the service scope.

Through Third Bridge, the team can seek relevant customer and operating perspectives for those questions. The value of the conversation lies in explaining the mechanism behind renewal, which the team can compare with contract terms and actual cohort data.

If research suggests that a customer retains providers until a site closes, the next question concerns exposure to site closures. If contracts are routinely rebid, the next question concerns the target's competitiveness at renewal. Different explanations lead to different diligence priorities.

This is an illustrative workflow. It shows how a commercial claim can be translated into an evidence-gathering plan without assuming an outcome.

Challenge expansion assumptions and the downside case

Treat entry into a new geography or customer segment as a separate research question. Identify what must transfer from the existing business and what needs to be built, including distribution, customer references, or service capability.

Then examine which assumptions could deteriorate together. Slower demand may affect sales conversion, customer budgets, and pricing at the same time. A downside case should explain those relationships rather than change each input independently without a commercial rationale.

Seek evidence that could challenge the preferred thesis. Conflicting expert accounts deserve investigation into their dates, segments, and sources of experience. Their disagreement may reveal where the business is more exposed.

Record findings in a usable diligence log

For each material assumption, capture the supporting evidence, contradictory evidence, confidence level, remaining gap, and implication for the model. Assign an owner and a next action to unresolved questions.

Keep source material separate from interpretation. Expert observations can inform commercial assumptions, while company records are needed to verify company-specific financial and contractual facts. The committee should be able to follow how the team moved from evidence to judgement.

For more on planning conversations across the transaction, read our guide to expert network calls in private equity.

Focus your research on the assumptions that matter

Third Bridge combines existing expert insights with access to relevant industry participants. That gives deal teams a way to build context and investigate the commercial questions that remain unresolved.

Share the market, target profile, and assumptions you need to test. Request a trial to discuss how Third Bridge can support your diligence programme.

Frequently asked questions

What is the difference between commercial and financial due diligence?

Commercial diligence examines markets, customers, competition, and the growth case. Financial diligence examines financial information and related issues such as earnings quality. Findings from each should inform the other.

Can expert interviews validate a revenue forecast?

They can test the commercial assumptions behind it, including purchasing behaviour and competitive conditions. The forecast also needs to be reconciled with company data and financial analysis. An interview alone does not verify a company's forecast.

When should primary research begin?

Once the team can define the material questions and the relevant audience. Early research can shape priorities, while later conversations can investigate more specific gaps as company information becomes available.