Deal notes
Seven questions commercial due diligence should answer before you sign
A short checklist for private equity and strategic buyers of middle-market industrial companies.
By Dan Lee · October 2026Most commercial due diligence reports are thick. The useful ones answer a small number of questions clearly enough to change the price, the structure, or the decision. For a middle-market industrial target, these are the seven we would want answered before signing.
1. How big is the market the target actually serves?
Not the market in the CIM, which is usually defined as broadly as possible. The question is the addressable market: the products, customers, and geographies the company can realistically win. In niche industrial markets there is rarely a published number, so it has to be built bottom up from customer counts, volumes, and pricing, then checked against industry interviews.
2. Is that market growing, and why?
Growth needs a cause you can name: a regulation, a technology shift, reshoring, a customer's capacity expansion. A forecast that simply extends the last three years is not a view of the market. Look at the 3, 5, and 10 year picture separately, because the drivers often differ.
3. Why do customers buy from this company?
Management will say quality and service. Customers will tell you something more specific: a qualification that is expensive to repeat, an engineer who answers the phone, a location near their plant. Those reasons determine how sticky the revenue is, and they only come out in direct customer interviews.
4. How concentrated is the revenue, and how safe are the big accounts?
In many industrial businesses a few customers or a few programs make up most of the revenue. Map each major account's program timing, sourcing behavior, and the share of its spend the target already holds. A program loss two years into the hold is the most common surprise.
5. Where does the target stand against competitors?
Profile the three to five competitors customers actually compare it to, including ones outside the CIM. Compare them on the purchase criteria customers named, not on a generic list. The goal is to understand whether the target's advantages are durable: switching costs, scale, process know-how, or a protected position with a key customer.
6. Is management's forecast achievable?
Trace each revenue driver to evidence: the pipeline, program awards, pricing, and market growth. Then test the cost side, capital needs, and working capital. Build a base, upside, and downside case. The difference between the base case and management's case is often the most useful number in the report.
7. Can the organization deliver the plan?
Growth plans depend on people. Assess leadership depth, the sales team's capacity to win new business, and the operational headroom to absorb more volume. A site visit and a few management interviews answer more of this than any data room.
What a good answer looks like
Good diligence does not always say yes. Some of the most valuable work ends with a lower bid, a changed structure, or a deal the buyer walks away from. If the report would not change anything you were going to do, it was not scoped to the right questions.
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Strategy · Market Research · M&A Advisory
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