Commercial Due Diligence: Types, Process, Report and Checklist

Commercial due diligence (CDD) is the process in which a prospective buyer reviews a target company's market, competitive position, customers, sales pipeline and business plan to judge its commercial viability. In KPMG's 2026 M&A Deal Market Study, 61% of private equity dealmakers and 47% of corporate dealmakers named meeting the business case and financial model as a top indicator of a successful acquisition, and the commercial due diligence report is the document that tests that case.

After more than a decade as an M&A advisor, and the diligence run on DealRoom since 2012, this is the commercial due diligence process, report structure and six-area checklist I would use.

Types of Commercial Due Diligence

There are many different types of due diligence, all dependent on the nature of the business and the concerns of stakeholders involved in the deal. Although each type of commercial due diligence plays a unique role in the overall diligence process, it serves a distinct purpose. 

Below are the four most common. ICAEW's 2025 guideline also separates buy-side work into full-scope CDD (every area of the scope, with primary and secondary research) and limited-scope CDD (one or two questions such as customer referencing or market sizing, used where the buyer already knows the sector or the deal size does not justify a full budget) (ICAEW Guideline 72).

Buyer-initiated Commercial Due Diligence

Just like it sounds, this kind of commercial due diligence is conducted by potential buyers to understand the target company holistically before proceeding with a transaction. Buyer-initiated Commercial Due Diligence provides an all-encompassing overview of the prospective target company to provide the potential buyer with all of the relevant information to proceed with the acquisition. 

It should focus on business operations, financial performance, and market dynamics in order to provide the buyer with a clear understanding of the target company.

Vendor-initiated CDD 

Opposite to buyer-initiated, vendor-initiated commercial due diligence is conducted by the seller of the business prior to the sale. Conducting due diligence on your own business on the sell-side of the transaction allows companies to prepare for the potential sale and anticipate any questions or issues that may arise when the buyer conducts their own due diligence. 

If completed early enough, vendor-initiated commercial due diligence allows the selling company to address any red flags or fix organizational risks, confront buyer concerns proactively, and potentially increase the value of the business. 

Red Flag CDD

Red Flag commercial due diligence is the expedited, high-level assessment of a target company performed by the buyer. This identifies any “red flags” that would pose significant risks to the deal's execution prior to an in-depth analysis of the target company, saving resources and mitigating risks. 

This kind of commercial due diligence focuses on the commercial risks most likely to break the deal, such as customer concentration, a market in decline or a forecast that implies unrealistic share gains. ICAEW gives the example of early customer interviews where concentration is already known to be a risk, and notes a red flag exercise is also used when the deal timetable leaves no room for full-scope work (ICAEW Guideline 72).

Red Flag commercial due diligence serves as a general basis, uncovering potential risks and liabilities at a high level and assisting a buyer in deciding whether to proceed with a deal. 

Top-up CDD

Top-up commercial due diligence is applied in deals to supplement the existing due diligence process when additional information in specific areas is needed. This type of commercial due diligence ensures that all risks are flagged to be evaluated at a later stage of the deal. 

Commercial Due Diligence Process

The due diligence process provides an understanding of potential liabilities and risks to the business and gives the acquirer an overall sense of the current state and performance of the target business. 

A typical CDD engagement takes around three to six weeks, and considerably longer where the scope is wide or spans several countries; the biggest variables are how much primary research is needed and how quickly the target can arrange customer and management interviews (ICAEW Guideline 72, 2025).

The due diligence process involved in conducting a thorough and informative report includes the following stages:

1. Liaising Process

Commercial due diligence kicks off with scoping. The buyer decides which commercial questions matter most for this deal and whether to answer them in-house or through a third-party firm. Corporates buying in their core market often run CDD internally and bring in advisers for targets outside it, while private equity firms, which invest across many sectors, usually engage an external practitioner (ICAEW Corporate Financier, October 2025).

Members of this external firm conduct in-depth diligence reports on behalf of the prospective buyer or private equity firm. The addition of a third-party firm decreases bias or potential influence by both parties in the transaction and provides a reliable source of information to make investment decisions upon. 

2. Preparation of a Genuine Report

The third-party executes the commercial due diligence report, which provides an analysis of the organization’s potential and current market value. Once finalized, this report is compiled and delivered to the prospective buyer. Compiling a report of the core functionality of the target company’s business model while outlining all risks, business operations, and financial performance in a digestible way assists teams in making educated, risk-aware investment decisions.When gathering information, it is important to take note of further diligence items and questions for the selling party. Initial diligence findings will provide a better understanding of the business aspects of which diligence should be expanded upon. 

3. Due Diligence Report Review

In the final step of commercial due diligence, the prospective buyer reviews and assesses the third party’s findings. The investigations and respective reports of due diligence are all-encompassing in order to hit every division of the target company.Due diligence unearths revenue margins, business plans or performance, market positioning, any real estate, and overall success of operations post-merger.The information within the reports forms a perspective and overall understanding of the business value, the sustainability of financials, forward growth projections, revenue margins, and more. The buying party reviews the diligence reports, analyzes, and synthesizes the findings to see if the initial synergy thesis is still valid.  

What to Include in a Commercial Due Diligence Report 

A commercial due diligence report analyzes the comprehensive findings uncovered throughout the due diligence process. It should be thought of as a highly detailed situational analysis of the company, critically examining the target company’s activities.

For the buyer, the commercial due diligence report acts as an objective version of the target company’s own business plan. Many pieces of the commercial diligence report are essential to any deal, while the importance of others may vary situationally.

Listed below are the core items most commercial due diligence processes require:

Company Overview

‍The company overview is a general explanation of the target company’s history, mission statement, and critical operations. This part of the report generally includes the company's name, legal structure, value proposition, revenue model, and go-to-market strategy.  

Management Structure and Employee Agreements

This section analyses the target's customer base: revenue and profit concentration, loyalty, retention and churn, plus how the base has changed over time. It usually includes the output of customer referencing calls or a customer survey, ideally with referees chosen by the CDD practitioner rather than by the target, covering why customers buy, how the target performs on their key purchase criteria and whether they intend to keep buying (ICAEW Guideline 72).

Pipeline Analysis

Where the target sells through a sales team, this section tests the strength of the future revenue pipeline: the quality, stage and value of open opportunities, likely conversion rates based on past performance, plus whether the pipeline supports the revenue targets in the business plan. It relies on CRM or pipeline-tracker data and conversations with management, and may include prospect interviews (ICAEW Guideline 72). Legal, HR and tax matters are covered by separate workstreams; see our guide to legal due diligence.

Products and Services

‍This encompasses all data and history on the company’s different products sold and completed transactions. This includes an in-depth overview of the product attributes, a description of services, regulatory constraints, pricing models, supply chain operations, and more.

Financial Model

Understanding the historical financials and growth strategy of the target company is essential to commercial due diligence. This includes the historical and future financial performance, previous acquisition history, and sustainability of growth, as well as potential synergies both financially and operationally.

Marketing Analysis

This includes information about the company’s marketing strategy, customer base, and competitive advantages. Other items often included in this section of the report - go-to-market strategy, plans for future growth and customer acquisition strategy. 

Competition

This section of the report details the target's current or potential competitors in the market and how they compare to these competitors’ market share.

Commercial Due Diligence Checklist

The extent of commercial due diligence to be undertaken largely depends on how many products and services, markets, and customers that the company has.

The following represents a broad overview of what a commercial due diligence checklist should include:

‍1. Market size for the company (TAM, SAM, and SOM).

• What are the key drivers in the market?
• How is the market likely to grow or change in the future?
• Is the market online or in-person? B2C or B2B?
• What is the sustainability of current industry margins?

2. Competitive Landscape

• Who are the main competitors?
• What advantages/disadvantages do they have relative to the target?
• How do their products/services differ?
• What are the barriers to entry for new competitors?

3. Review of the company’s business plan

• Does it provide a clear path for revenue growth?
• Is the plan for future business realistic and attainable?
• How does the current business generate revenue?
• How does the investment thesis relate to the current business operations?
• How does the business plan fit with the buyer’s own strategic objectives?
• What is the go-to-market strategy? 

‍4. Customers

• What are the psychographic and demographic characteristics of the company’s customers?
• What is the average lifetime value of a customer?
• What is the customer retention rate? 
• What is the company’s customer churn level?
• When speaking directly with customers, what are they looking for in the market? 

5. Sales and Marketing

• How much of the annual budget is spent on sales and marketing?
• How could the sales and marketing be improved?
• What is the average customer acquisition cost? Is it higher/lower than the market average?
• How are customer relationships managed? 

6. Financial Health

• Has revenue been growing in the past few years? 
• What are the profitability margins of the business? 
• How much free cash flow is the business generating? 
• Are costs increasing or decreasing? 
• What types of costs does the business incur? 
• What financial synergies will be achieved after the business is acquired? 

Benefits of Commercial Due Diligence 

Having a clear understanding of the risks and business operations of a potential target provides the prospective buyer with the ability to make an informed investment decision while limiting overall risk. The benefits include: 

1. The Benefits of Informed Negotiation

The investigative aspect of purchasing a company can give an investor the edge over the seller during negotiations. Being aware of all the necessary information will help the buyer establish a more accurate negotiation price and defend their position.

On the sell side, a vendor-initiated CDD report gives the seller the same evidence before bidders see it, so weaknesses can be fixed or explained early. KPMG's deal strategy lead describes vendor CDD as increasingly part of the standard pack sellers prepare, and a market norm where private equity bidders are involved (ICAEW Corporate Financier, October 2025).

2. Assurance of a Good Investment

Lenders financing the deal often commission or are given access to the CDD report and use it to judge whether the target's revenue and margins can support the proposed debt. Warranty and indemnity insurers are also frequently given the report on hold-harmless terms when pricing cover (ICAEW Guideline 72). A CDD report does not promise future performance; it gives the buyer, the lender and the insurer an evidence-based view of how achievable the plan is.

3. Future Market Performance

Commercial due diligence provides an overall understanding of the market in which the target company competes. This knowledge provides the potential buyer with a forward-looking view of the performance of the target company and future market performance.

4. Influence of Competitive Landscape

A complete understanding of the competitive landscape for the target company is important for assessing future growth potential. Commercial due diligence will provide the buyer with a comprehensive view of the competitive advantage or lack thereof for the target company prior to the acquisition. 

Frequently asked questions

How long does commercial due diligence take?

A typical commercial due diligence engagement takes about three to six weeks, according to the ICAEW Corporate Finance Faculty's 2025 commercial due diligence guideline, and can run considerably longer when the scope is wide or covers several geographies. The main variables are the depth of primary research, how quickly the target arranges customer and management interviews and whether a vendor CDD report already exists. A red flag exercise is shorter; a full-scope report with customer referencing sits at the top of the range.

Who conducts commercial due diligence?

Commercial due diligence is conducted either by the buyer's own deal team or, more often, by an external adviser: a strategy consultancy, a Big Four deal strategy team or a specialist CDD boutique. Private equity firms, corporate acquirers and lenders are the parties that commission it, according to ICAEW Guideline 72. Corporates buying in their core market frequently conduct commercial due diligence in-house; Rentokil Initial's group M&A director told ICAEW's Corporate Financier in October 2025 that it uses outside advisers only for targets outside its existing businesses.

What does a commercial due diligence report include?

A commercial due diligence report includes an executive summary, a business overview, a market review, a competitor analysis, a customer analysis, a pipeline analysis, commentary on risks and opportunities and an assessment of whether the business plan forecast is achievable, with detailed data in appendices, according to the ICAEW commercial due diligence guideline. Most CDD reports are slide-based, and each business plan driver is typically rated red, amber or green. A red flag report is a shorter version that covers only the issues the buyer is most concerned about.

What are the main red flags in commercial duediligence?

The ICAEW commercial due diligence guideline lists customer concentration, customer dissatisfaction, market weakness, competitor activity and regulatory exposure as the issues that most often change a deal. In practice the red flags that move price are revenue dependent on a few customers, falling retention or rising churn, a pipeline that does not support the forecast and a plan that implies market share gains the competitor analysis cannot explain. A red flag found early lets the buyer renegotiate terms, narrow the scope or walk away.

How is AI used in commercial due diligence?

In our State of AI in M&A 2026 Report, 51% of the 237 M&A practitioners surveyed between November 2025 and July 2026 said they already use AI in M&A and another 31% are piloting it, and due diligence was the area most often named (26%) for the greatest AI impact over the next 12 to 24 months. In commercial due diligence the common uses are summarizing market reports, coding customer interview transcripts and sorting data room documents, with the practitioner still responsible for the judgement in the report.

How can DealRoom Help with Commercial Due Diligence 

Commercial due diligence is a complex process that requires organization, collaboration, and careful analysis. 

Teams collect extensive amounts of sensitive documents, collaborate with various outside parties, and work together to analyze the information received. All these activities are essential to a successful deal but are also extremely difficult and complex.

DealRoom's due diligence software can help.

DealRoom M&A Platform enables team collaboration, secure and organized document collection, and the examination of important analytics to enable informed decisions.

Close deals faster, more efficiently, and more equitably by streamlining diligence with DealRoom’s intuitive, innovative platform.