Deal-making is glamorous; due diligence is not. This simple quote by Bain’s former PE Director, Geoffrey Cullinan, goes a long way toward explaining why so many companies have made so many acquisitions that have produced so little value. Due diligence all too often becomes an exercise in verifying the target’s financial statements rather than thoroughly evaluating the strategic fit of the deal and the acquirer’s potential to generate value from it.
This is where the commercial due diligence report comes in.
Whether you’re a seasoned investor, a management consultant, or an entrepreneur considering a business acquisition, understanding the ins and outs of commercial due diligence is essential. In this post, we’ll explore commercial due diligence reports, why they’re important, and how to structure a best-practice report. We’ll also share tips and tricks for your process based on our experiences at McKinsey, BCG, and Bain.
When engaging in an M&A process, the investor/acquirer will want to conduct a comprehensive due diligence of the target company to understand if it is overall a good investment.
The due diligence encompasses many areas of the company, with the commercial due diligence being a cornerstone of the process.
A Commercial Due Diligence (CDD) report is a systematic, thorough investigation of a target company’s market position, competitive environment and growth prospects.
The main objective of the commercial due diligence is to answer the question: is this a good business to be in?
This involves analyzing market and customer dynamics, mapping the competitive landscape, and understanding the target’s competitive advantage and financial strength to identify opportunities and mitigate risks.
The commercial due diligence report is important due to several factors:
Examples from a real commercial due diligence report (from our Due Diligence Report template)
To write a good due diligence report, you need to remember three things:
Let’s dive into each of these points.
First and foremost, you should have a very clear picture of which questions the acquirer/recipient of your due diligence report wants to have answered. What is their objective with the acquisition? What are they nervous about? Where do they have blind spots that you can dig deeper into and make sure are covered?
To do this, you need to adopt an investor mindset and think through all important scenarios. The easiest way to do this is by using a first principles approach, where you systematically unfold and dive deeper into key aspects of a business.
See the figure below for an example of this type of approach.
If you find yourself struggling to formulate questions, then it’s most often a sign that you’ve over-complicated things and need to take a step back and rethink your questions. Good questions likely feel simple and almost obvious when stating them but are surprisingly hard to answer.
Second, use a simple and logical structure for your due diligence report. The due diligence report format is often built up around the key areas you answer during the commercial due diligence process and which often mirrors the questions you defined when thinking through the objective, i.e., market analysis, competitive landscape, customer analysis, etc.
Depending on your particular type of business and target company, you’ll likely not include all sections but only the ones that are of particular importance for the target company's situation.
The main sections should then be bookended by answers and process pieces.
In the beginning, you want to first follow the pyramid principle by including a solid executive summary that emphasizes the answers and recommendations. See our guide on writing executive summaries like McKinsey and BCG in this article here.
Following this, you want to include an introduction to the due diligence project that sets the scene and lays out how the analysis has been conducted and potentially which limitations you’ve encountered. This will help the recipients understand how thorough the due diligence has been, and how it fits into an overall timeline.
After your main section with the commercial due diligence components, the natural flow leads to a financial modeling section where you examine the numbers of the potential transaction and essentially decide if the target company is a good and healthy purchase.
Following this, you’ll likely want to include a risks and synergies assessment. This will help identify where the red flags and opportunities are based on the previous research and highlight it in an easily digestible manner to your recipients.
The due diligence report then ends with your recommendations i.e., the main answers of the due diligence process and what this means for the recipients/acquirer, as well as immediate next steps and a longer plan post-acquisition.
Most due diligence reports also include several lengthy appendices to contain all the research that could not be included in the main report so the recipients can find answers to follow-up questions or confirm details.
An example of what market and competitor analysis slides can look like in a due diligence report (from our Due Diligence Report template)
Third, remember that a due diligence report is just like any other presentation in the sense that its main purpose is to convey information to the recipients in as clear and concise a manner as possible.
This means you should use all the normal tools in a consulting toolbox to take your presentation from good to great. Examples of this are:
Find many more articles on creating stellar presentations in our Resources library
Using the approach outlined in this article will help you craft top-tier commercial due diligence reports in an efficient and effective way.
A commercial due diligence report is a systematic investigation of a target company’s market position, competition, and growth prospects ahead of a transaction. It answers one central question: is this a good business to be in?
The standard structure runs: executive summary built on the Pyramid Principle, introduction and methodology, market, competition, and customer sections, financial modeling, risks and synergies, recommendations and next steps, and appendices. Investors read the executive summary first and often decide there, so it carries the whole argument.
Five purposes: establish value and price, mitigate risk, identify opportunities, ensure strategic alignment, and prepare a smoother post-merger integration. As Geoffrey Cullinan, formerly of Bain, put it: deal-making is glamorous, due diligence is not. The unglamorous part is what protects the deal.
Build the skeleton report and models early, align scope with the team and the investor, book expert interviews fast, accept good-enough answers where precision does not change the conclusion, and work hypothesis-driven with MECE structures and the 80/20 rule. These habits come directly from how Bain and BCG run CDD projects.
Log every data source transparently, use blue-chip sources, and never hard-code numbers into formulas. When an investment committee challenges a figure, and one will, you need to trace it to its source in seconds.
