Commercial due diligence, or CDD, sits at the centre of every high-stakes M&A process. Its purpose is simple: test the investment thesis before capital is committed. Yet many vendors still treat CDD as a confirmatory tick-box exercise rather than the critical value-defence tool it has become. Global M&A Industry Trends report found that forty one percent of mid-market deals failed to close at the agreed headline price because commercial assumptions did not survive diligence scrutiny. Buyers dug into customer economics, pricing power, route-to-market, and cost-to-serve, and they did not like what they saw.
For digital and DTC brands whose stories lean heavily on growth curves and marketing efficiency, the bar is even higher. Private equity investors and strategic acquirers now arrive with their own data scientists and operator advisers in tow. They want hard evidence that lifetime value exceeds customer acquisition cost, that gross margin can withstand fulfilment inflation, and that international expansion will not cannibalise domestic profitability.
The opportunity for sellers and their advisers is clear: anticipate those questions and arm yourself with the right numbers, benchmarks, and action plans. In this guide we outline what investors really want to know during commercial due diligence, how to prepare data that stands up to forensic inspection, and where an operator-led view can increase deal confidence. Every insight is drawn from eComplete’s work on more than forty CDD mandates across Europe, North America, and Asia.
1. Market and macro fit: proving the growth ceiling
Investors first test whether the category’s structural tailwinds justify the target’s growth forecast. The analysis goes beyond Total Addressable Market slides. Expect questions such as:
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Is the category growing faster than GDP, and why?
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How fragmented is market share, and how has it shifted over five years?
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Where will incremental users come from once early adopters are exhausted?
Data that answers the thesis
|
Metric |
Source |
Why it matters |
|
Five-year CAGR in online penetration |
Euromonitor |
Shows digital runway |
|
Search volume trend for category head terms |
Google Trends |
Early indicator of demand shifts |
|
Household spend elasticity to price changes |
ONS Family Spending |
Tests resilience in downturns |
Quantify headroom, do not describe it. For example:
“Female activewear in Germany grew ten percent CAGR 2019–2023 while sports apparel overall grew six percent.”
Euromonitor Apparel Outlook 2024
Use independent data to support every claim. A venture-funded beauty brand recently failed to meet its valuation target when buyers discovered that its nineteen percent category growth claim relied on Instagram hashtag momentum rather than audited sales data.
Red flags
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Growth story depends on a single tariff change or temporary pandemic behaviour
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TAM (Total addressable market) calculated on global sales when fulfilment network reaches only two markets
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Category profitability decays faster than revenue grows, suggesting a race to the bottom
2. Unit economics and cohort dynamics: validating the revenue engine
Savvy investors reverse-engineer LTV:CAC ratios, first-order contribution, and retention curves long before exclusivity. They often request raw Shopify, Google Analytics, and marketing platform exports to rebuild the maths themselves.
Core KPIs to surface
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Blended LTV:CAC over twenty four months by acquisition channel
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First-order contribution margin: net revenue minus cost of goods, fulfilment, transaction fees, and initial marketing
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Monthly cohort retention for at least twenty four cohorts
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Discount code dependency: percentage of first orders purchased at greater than fifteen percent off RRP
A 2023 Bain study showed that brands with a first-order gross margin below fifteen percent experienced a thirty percent higher chance of price re-negotiation during diligence. Present investors with a table that connects first-order unit economics to long-term payback:
|
Cohort Month |
Net Contribution (£) |
Cumulative CAC (£) |
Running LTV:CAC |
|
0 |
7.20 |
18.00 |
0.40 |
|
6 |
19.80 |
18.00 |
1.10 |
|
12 |
28.50 |
18.00 |
1.58 |
|
24 |
38.70 |
18.00 |
2.15 |
Explain any anomalies. If paid CAC inflated in Q3 because Meta CPM spiked, show the mitigation plan: creative refresh, channel diversification, or loyalty activation.
Practical Q&A
Q: What LTV:CAC ratio do sponsors view as bankable?
A: We regularly see premium multiples when brands reach 2.5 within twenty four months and exceed first-order breakeven in under six months.
Q: How much discounting is “too much” for first purchase offers?
A: Our benchmark across twenty consumer exits is ten percent of first orders above thirty percent off RRP. Anything higher signals weak proposition strength.
3. Operational scalability: from supply chain to tech stack
A topline growth story collapses if the back-end cannot scale at similar speed. Investors focus on fulfilment cost-to-serve, cross-border logistics, and platform robustness.
Key areas of focus
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Pick-pack-ship cost per order versus AOV
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Warehouse capacity utilisation and expansion capex needed
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Payment gateway failure rates at peak traffic
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Customer service backlog after promotions or seasonal spikes
eComplete portfolio brand, Naturecan’s entry into forty markets within five years succeeded because the brand built a distributed 3PL network and a Shopify Markets architecture from day one. Investors value that foresight because it derisks future expansion.
Fulfilment cost sensitivity table
|
Annual Orders |
Current Cost per Order (£) |
Target Cost per Order (£) |
Annual Saving (£) |
|
250,000 |
1.27 |
0.95 |
80,000 |
|
500,000 |
1.24 |
0.92 |
160,000 |
|
1,000,000 |
1.24 |
0.90 |
340,000 |
By quantifying potential savings, you give buyers visibility on margin expansion they can underwrite in the model.
Technology audit
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Document the stack: eCommerce platform, OMS, WMS, ERP, BI tools
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Show uptime records and traffic stress-test results
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Highlight GDPR or PCI compliance certificates
Poorly documented integrations or single-point-of-failure custom code often trigger either a price reduction for remediation costs or a holdback in escrow.
4. Risk adjustment and integration plan: making the upside believable
A compelling CDD report does more than identify upside. It adjusts forecasts for execution risk and lays out a one-hundred-day integration roadmap.
Adjusting the base case
Investors apply haircut factors to management forecasts. Facilitate this by:
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Providing scenario models for three conservative sensitivities: minus ten percent revenue, plus five percent cost of goods, plus five percent fulfilment
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Demonstrating historical accuracy of monthly budget versus actual to prove forecasting discipline
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Mapping working capital swings under fast growth to prevent nasty covenant surprises
The one-hundred-day playbook
Investors want evidence that value creation levers are already scoped, resourced, and timed. At eComplete we supply a Gantt outline that covers:
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CRM uplift: implementation of multi-step email flows by day forty five
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Paid media optimisation: creative testing and channel diversification from day thirty
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Supply chain savings: carrier tender and packaging redesign by day sixty
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Data visibility: automated KPI dashboard live by day seventy five
Providing this roadmap de-risks integration headaches and signals operator-level readiness.
“Integration is where multiples go to die. The best CDD packets tell me exactly who will do what in week two, not just year two.”
-Operating Partner at mid-market European PE fund, interview with eComplete 2024
Conclusion
Commercial due diligence is no longer a formality. It is the gatekeeper to valuation and certainty of close. Investors want quantifiable proof in four areas: market headroom, unit economics, scalable operations, and risk-adjusted integration. Sellers who prepare these data sets early close faster and defend higher multiples.
Operator insight matters. Experienced practitioners spot gaps in retention cohorts, stress-test fulfilment cost inflation, and build hundred-day plans that buyers can bank on. That credibility is why eComplete’s CDD engagements often extend into post-deal value creation mandates. We benchmark brand health across hundreds of metrics and translate findings into concrete actions that unlock EBITDA. If your exit or acquisition requires forensic commercial diligence, we would be delighted to talk.
