Sixty to seventy percent of acquisitions fail to deliver expected returns. That number hasn't changed much in 30 years, despite increasingly sophisticated financial models, legal reviews, and integration playbooks.
The reason is almost always the same: the buyer's assumptions about the market were wrong.
Not the financial assumptions—those are stress-tested six ways by transaction advisors. The commercial assumptions. The ones about customer retention, competitive positioning, market growth, and whether the target company's revenue is as durable as it looks on paper.
That's what commercial due diligence is designed to catch. And most buyers either skip it or do it poorly.
What Commercial Due Diligence Actually Covers
Commercial due diligence (CDD) answers one fundamental question: Is this company's commercial position as strong as the seller claims?
That breaks down into five areas:
1. Market Reality Check
The seller's management presentation says the market is growing at 12% annually. Is that true? More importantly, is the accessible market growing, or is growth concentrated in segments the target doesn't serve?
We've seen deals where the "fast-growing market" narrative was technically correct—the overall industry was growing—but the target's specific sub-segment was actually declining. The seller positioned the macro trend as relevant. It wasn't.
2. Customer Durability
Revenue looks great. But how concentrated is it? If 3 customers represent 60% of revenue, what happens when one of them is acquired, changes strategy, or decides to in-source?
More importantly: Why do customers stay? Is it because the product is genuinely differentiated? Or is it because switching costs are high and inertia is strong? The second scenario looks like loyalty in the spreadsheet. It's actually vulnerability—the moment a better option makes switching easy, those customers leave.
3. Competitive Moat Assessment
What prevents competitors from taking the target's customers? IP? Relationships? Regulatory barriers? Scale?
In many deals, the "moat" turns out to be less durable than the seller presents. A competitor is developing similar technology. A regulatory change is opening the market to new entrants. A large customer is investing in an internal capability that replaces the target's product.
4. Growth Plan Viability
Sellers present projections. CDD tests whether those projections are realistic.
The target says it will grow 25% next year by entering the European market. Has anyone validated that European buyers want this product? At this price point? Through the distribution channels the target plans to use?
This is where CDD overlaps with market entry research. You're essentially asking: Can this company execute its growth plan in the timeframe it projects—or is the buyer paying for growth that won't materialize?
5. Sales Pipeline Integrity
The pipeline shows $15M in "probable" deals closing within 12 months. CDD independently verifies a sample of those opportunities.
We've found deals where the pipeline included conversations that happened 18 months ago with no recent follow-up, prospects who had no budget authority, and "handshake agreements" that were actually polite expressions of interest with no commitment.
What CDD Is Not
Commercial due diligence is not financial due diligence. It doesn't review the balance sheet, audit the financials, or assess tax exposure.
It's not legal due diligence either. It doesn't review contracts, assess litigation risk, or validate IP ownership.
CDD operates in the space between the numbers and reality. The financials say revenue grew 15% last year. CDD answers why it grew, whether that growth is sustainable, and what risks exist that don't show up in the P&L.
The Three Layers Most Buyers Miss
Layer 1: The Ecosystem Behind the Revenue
Every B2B company operates within a commercial ecosystem—a network of relationships, intermediaries, and influence patterns that determine how revenue actually flows.
CDD should map this ecosystem, not just the direct customer relationships. Who refers business to the target? Which industry consultants recommend their products? What happens to referral-driven revenue if a key relationship changes?
We worked on a deal where 40% of the target's new business came through 3 industry consultants who recommended them to end customers. The seller didn't disclose this because they didn't think it was material. It was extremely material—if any of those consultants retired or changed allegiance, the pipeline would collapse.
Layer 2: Customer Interview Reality
Most CDD processes include customer interviews. But the quality varies wildly.
Bad practice: Call 5 reference customers the seller provides and ask general satisfaction questions. You get positive answers because the seller chose their happiest customers.
Good practice: Independently identify 15-20 customers (including churned customers and prospects who chose a competitor). Ask specific questions about switching intent, competitive alternatives, pricing pressure, and unmet needs.
The gap between what reference customers say and what a broader sample reveals is often the gap between a good deal and a bad one.
Layer 3: The Competitive Response
Buyers analyze the target's current competitive position. They rarely analyze what competitors will do after the acquisition closes.
Acquisitions are public events. Competitors notice. They respond. Sometimes they accelerate R&D. Sometimes they cut prices. Sometimes they poach key employees or customers during the integration chaos.
CDD should include a competitive response scenario—not just "Who competes today?" but "How will competition shift when this deal is announced?"
When to Run CDD in the Deal Timeline
CDD happens during the buyer's due diligence window—typically 4-8 weeks between signing the LOI and closing.
But here's the trap: that window is packed. Financial, legal, tax, IT, HR, and commercial due diligence all compete for the same 4-8 weeks of attention. CDD often gets compressed to 2-3 weeks because the financial work ran long.
Two-three weeks is not enough for thorough commercial due diligence. Customer interviews alone take 2-3 weeks to schedule and conduct properly.
The fix: Start pre-CDD research before the LOI. You can build the market landscape, competitive analysis, and preliminary customer mapping without access to the data room. When the LOI is signed, you're 60% done and can focus the remaining time on the work that requires seller cooperation.What a Good CDD Report Tells You
A good CDD report answers four questions:
1. Is the revenue sustainable?Not "will revenue grow" but "will the current revenue base hold?" Customer concentration risk, competitive threats, technology shifts.
2. Is the growth plan realistic?Can the target execute its projections given market conditions, competitive dynamics, and operational constraints?
3. What are the commercial risks the seller didn't disclose?Not because they're hiding them (usually), but because they've normalized them. They don't see the risk because they've been managing around it for years.
4. What's the realistic revenue trajectory post-acquisition?Including integration disruption, competitive response, and customer uncertainty during ownership transition.
Red Flags That Should Kill Deals
In 20 years of commercial due diligence work, we've seen these patterns repeatedly:
Customer concentration above 40% in top 3 accounts. This isn't automatically a deal-killer, but it means those 3 relationships need individual deep-dives. If any of them are at-risk, the deal valuation changes dramatically. Revenue growth driven by one-time events. A large contract win, a competitor exit, a regulatory mandate that drove temporary demand. These inflate trailing revenue and make projections look more reliable than they are. The "we're about to close" pipeline. When 30%+ of the projected pipeline is described as "almost done" or "verbal commitment," verify independently. Verbal commitments are worth exactly what they cost. Technology transition risk. The target's product is built on aging technology. Management says the next version will be better. But the next version isn't shipped yet, and customers are already looking at alternatives. Key-person dependency. Revenue depends on 2-3 people who have the customer relationships. If they leave during integration, the revenue follows.The Bottom Line
Financial models don't fail acquisitions. Bad market assumptions do.
Commercial due diligence exists to test those assumptions—to find the gap between what the seller's presentation says and what the market actually looks like.
Don't compress it. Don't treat it as a checkbox. And don't rely only on the customers the seller chooses.
The deals that succeed are the ones where the buyer understood the commercial reality before they signed the check.