So You Don’t Think You Have Customer Concentration?
In M&A due diligence, there is a misconception that customer...
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If you’re in private equity, you know the drill.
One moment, you’re chasing what looks like a golden deal; the next, you’re buried in diligence, just hoping the business you’re eyeing isn’t hiding a giant, expensive mess. It’s a fast-paced game, and let’s be honest—having the right insight at just the right moment? That can mean the difference between a big win and a painful “learning experience” you’d rather not repeat.
My team and I work with over a hundred private equity firms in the lower middle market, to give them the kind of commercial insight that actually moves the needle. Our Private Equity Solutions practice focuses on three key areas: Commercial Due Diligence, Customer Due Diligence, and Market Assessments. These aren’t just buzzwords—they’re practical tools that help you underwrite smarter, move faster, and build stronger platforms. Wondering how they work, when to use them, and why they matter? Let’s break it down.
1. Commercial Due Diligence: Your Full Deal Picture, From Market to Margin
When to use it: Pre- or post-LOI
Key question it answers: Is this business winning in a market worth winning?
Commercial Due Diligence takes a wide-angle lens to the business. We look at market sizing (TAM, SAM, SOM), growth dynamics, competitive landscape, pricing power, regulation, value chain positioning, and anything else that could impact how the target performs post-close. It’s often used when a firm has a signed LOI and needs a full investment thesis tested—or when they’re trying to justify paying a premium in a competitive auction.
Why it matters: In one case, a PE client leaned on our work to defend a valuation premium in a crowded process by showing that the target was gaining share in a fragmented and underpenetrated market. They won the deal, and exited in under three years with a 3.5x return.
How it helps:
- Sharpens your investment thesis
- Highlights upside levers (new verticals, pricing opportunities, potential add-on acquisitions)
- Reveals market risks early
- Gives your lenders and LPs confidence to follow your lead
2. Customer Due Diligence: The Must-Have for Concentrated B2B Deals
When to use it: Post-LOI, before close
Key question it answers: Will the customers stick around after we buy the company?
Customer Due Diligence is the unsung hero of the B2B deal world, especially when you’re staring down a target where the top 10 customers account for 50–80% of revenue. If one of them walks, the deal model breaks. Our CDD work goes straight to the source: the customers. Within thirty days, we assess relationship strength, switching risk, key person risk, competitive positioning, pricing dynamics, and more by conducting in-depth interviews with the customers who matter most.
Why it matters: This isn’t theoretical. One of our clients recently walked away from a deal after our interviews revealed that the target's largest customer was dissatisfied with service and actively out to bid. That single insight saved them from a seven-figure mistake.
How it helps:
- Validates—or challenges—the revenue base
- Informs earnout structures or working capital adjustments
- Builds a stronger case for lenders and ICs
- Provides a roadmap for post-close improvement
3. Market Assessments: Your Compass for Platform Building
When to use it: Pre-LOI, often before a target is even identified
Key question it answers: Is this an industry we want to bet on?
Market Assessments are for investors thinking one step ahead—before the auction, before the teaser, before the bake-off. These studies help firms decide whether to build a platform in a new industry or double down in a vertical they already know. We help size the market, assess growth drivers and constraints, map the competitive and regulatory landscape, and even identify a long list of potential acquisition targets.
Why it matters: One client used our assessment of the airport lighting market to identify a fragmented, high-growth niche with no scaled player. Eighteen months later, they’d acquired three of the top regional players, built a national platform, and were fielding inbound interest from strategic buyers.
How it helps:
- Identifies hidden markets before they heat up
- Provides the groundwork for a buy-and-build strategy
- Equips your team with data and targets before a process starts
- Builds confidence with your LPs and deal team
The Payoff: Better Deals, Bigger Returns
In private equity, everyone works hard, but you don’t win by working the hardest. You win by picking the right deals and nailing the execution. That’s where smart diligence earns its keep. When it’s done right, it’s not just about ticking boxes; it actually shapes your strategy. It helps you know when to walk, and when to lean in hard because the upside’s real.
Still, too many investors are flying half-blind. They’re leaning on gut instinct, war stories, or the same three CIMs everyone else has already seen. Meanwhile, the firms that consistently land in the league tables? They’re making decisions backed by timely data, and they’re making decisions confidently.
Whether you’re kicking the tires on a business or sketching out your next platform play, the right kind of diligence, run by folks who understand how PE operates, can be the edge you’re looking for.
