Commercial diligence is the deal team's external study of a target. It answers: is this market what management says it is, is this company's position what management says it is, and is the management team capable of executing the plan we are about to underwrite?
Market sizing — TAM / SAM / SOM
The discipline begins with TAM (Total Addressable Market — the total demand for the product or service in the universe), SAM (Serviceable Addressable Market — the portion the company can credibly reach given geography, channel, and product), and SOM (Serviceable Obtainable Market — what is realistic to win against the actual competitive set in a 5-year window). Sell-side decks routinely conflate the three. The buyer's job is to separate them, sourcing each from independent data.
Competitive positioning and customer cohort analysis
Map the competitive set — who else does this, what is their share, what are their cost positions. Then test the company's win/loss data: customer interviews, churn cohorts, NPS, pricing power. Cohort analysis — tracking customers acquired in successive periods through retention, expansion, and lifetime value — is the most powerful diligence technique invented in the last twenty years. A SaaS company with 130% net revenue retention is structurally different from one at 95%, regardless of similar headline growth.
Management evaluation
Three diligence channels: structured interviews with the CEO/CFO/COO, on-site shadowing, and 360-degree references with prior employers, customers, and board members. Sophisticated firms employ industrial-organisational psychologists for structured assessments. The evaluation question is not are these people impressive; it is are they the right people to execute the specific plan we are underwriting.
How the workstreams divide
Commercial DD (sector consultants, e.g. LEK, Bain, Parthenon): market and competitive. Operational DD (Big Four, KPMG Strategy): operations, ops capability, technology stack. Legal DD (deal counsel): contracts, IP, litigation. ESG DD (specialised firms): material ESG risks. Each workstream has its own lead, its own deliverable, and its own integration touchpoint with the deal team.