Meaning and transaction use
ICAEW describes CDD as an objective enquiry that critiques commercial matters, including a target's business plan and financial projections, using evidence about the market, competitors, customers, business model and performance. [S1]
ICAEW identifies commercial risks, business-plan assumptions, the equity story and valuation insight as transaction uses of CDD. [S1]
PwC describes market attractiveness, competitive positioning, customer satisfaction and revenue-forecast challenge as core areas of commercial diligence. [S2]
Worked example
Illustrative forecast challenge only. Assume current annual revenue of 80.0 million, 10.0% expected churn, 8.0 million of signed new revenue, 3.0 million of evidenced expansion and a 4.0 million qualified pipeline assigned an illustrative 30.0% probability. Management forecasts 92.0 million.
Scroll the table horizontally to view all columns.
| Measure | Calculation | Result |
|---|---|---|
| Retained base revenue | 80.0 x (1 - 10.0%) | 72.0m |
| Probability-weighted pipeline | 4.0 x 30.0% | 1.2m |
| Illustrative supported revenue | 72.0 + 8.0 + 3.0 + 1.2 | 84.2m |
| Gap to management forecast | 92.0 - 84.2 | 7.8m |
| Forecast support ratio | 84.2 / 92.0 | 91.5% |
| Illustrative top-five concentration | 36.0 / 80.0 | 45.0% |
The illustrative evidence supports 84.2 million of revenue, 7.8 million below management's forecast. The 30.0% pipeline probability and all other assumptions require validation; the support ratio does not predict actual revenue or investment returns.
Proposed transaction review process
Define the investment questions
Set the deal hypothesis, valuation drivers, key risks, decision thresholds, scope and required reliance.
Build the market and competitor view
Size relevant segments, test growth drivers, map competitors and assess regulation, technology and substitution risks.
Test customer and commercial evidence
Analyse retention, concentration, pricing, cohorts, pipeline and customer feedback using consistent populations and dates.
Challenge the plan
Rebuild key forecast drivers, quantify supported ranges and translate findings into valuation, terms and value-creation actions.
Evidence checklist
Market evidence
Segment definitions, independent data, demand drivers, regulation, technology and source-date reconciliation.
Customer evidence
Revenue cohorts, retention, concentration, contracts, usage, pricing, surveys and authorised interviews.
Competitive evidence
Competitor offerings, capacity, pricing, routes to market, win-loss data and differentiated capabilities.
Business-plan evidence
Historical performance, sales funnel, signed backlog, conversion rates, delivery capacity and management assumptions.
Decision framework
| Situation | Proposed action |
|---|---|
| Market definitions are inconsistent | Reconcile products, geographies, customers and periods before relying on size or share estimates. |
| Customer evidence contradicts the plan | Revise the relevant retention, pricing or growth assumptions and test valuation sensitivity. |
| Pipeline quality is unverified | Separate contracted, qualified and early-stage opportunities and apply evidence-based conversion assumptions. |
| A growth initiative lacks capabilities | Identify the investment, people, time and execution dependencies in the value-creation plan. |
Common errors to check
- Using broad industry growth as the target's addressable segment growth without reconciliation.
- Treating management pipeline as contracted revenue.
- Relying on a small or biased customer sample without stating the limitation.
- Reporting market findings without tracing their effect on the forecast, valuation or transaction decision.
Challenge the commercial investment case
Bring the investment thesis, market model, customer data, competitor evidence, pipeline and management forecast to a commercial diligence review. Quantify the supported case, evidence gaps and value-creation dependencies before the decision point.
Discuss the transactionPrimary references and editorial scope
- ICAEW Corporate Finance Faculty, Commercial due diligence
CDD definition, evidence areas and transaction uses. Reference checked 17 September 2026. - PwC Canada, Deals strategy and commercial diligence
Market, competitor, customer and revenue-forecast assessment in commercial diligence. Reference checked 17 September 2026.
General transaction education. Figures and pipeline probabilities are hypothetical. The scope, procedures, source access and reliance depend on the engagement, market, transaction and applicable confidentiality, privacy, legal and regulatory requirements.
General business information. Obtain advice appropriate to the legal, tax, accounting and financing facts. No offer, lender commitment or transaction outcome is represented. All worked examples use expressly assumed figures. Editorial draft date: 17 September 2026.
