Commercial Due Diligence (CDD)

Commercial due diligence marks the analytical core of every investment decision. With increasing market volatility, digital structural change and growing AI dynamics, a historical assessment of business models is no longer sufficient; investors must reliably assess their future viability in a technology-driven competitive environment. A methodologically sound CDD creates data-based transparency on market potential, operational performance and risk drivers, increasingly supported by AI-based analyses such as predictive market sizing or automated funnel evaluations.

Context and relevance

Across numerous transaction projects, FOSTEC & Company has built up experience with various investor types and financial sponsors – from PE and VC firms through to family offices. This experience spans investment sweet spots of different orders of magnitude: from specialised small-cap funds through to global large-cap investors (Figure 1: FOSTEC & Company’s cross-sector due diligence expertise).

Figure 1: FOSTEC & Company’s cross-sector due diligence expertise

With a structured, two-stage due diligence approach, FOSTEC & Company delivers transparency on risks, market potential and business-plan validity – analytically sound and supported by AI-based methods (Figure 2: Commercial due diligence project approach).

Phase I – Red Flag Report

Phase I – Red Flag Report focuses on a rapid, risk-oriented initial assessment of the target. The aim is to identify critical red flags and to make an initial assessment of central value drivers along the lines of business model, market positioning and operational performance.

1. Business model assessment
   Assessment of economic viability along central revenue and value drivers (revenue streams, margins, scalability), together with the identification of structural risks and an initial assessment of business-plan validity.
2. Product and assortment analysis
   Analysis of assortment structure, breadth and depth and their contribution to revenue and margin development, and the positioning of competitive advantages within the competitive landscape, including benchmarking of offering and price positioning.
3. Sales & funnel performance
   Analysis of the sales funnel (traffic, conversion) to identify central performance drivers and bottlenecks, and assessment of sales efficiency with an initial derivation of customer value (e.g. CLV indications).
4. Sourcing & supply chain
   Assessment of the procurement strategy with regard to cost structure, dependencies and supply-chain resilience, and analysis of operational performance and risks along the supply chain, including scalability.
5. Customer and channel performance
   Analysis of the customer structure (segmentation, value contributions, cohorts) to identify central growth drivers, and assessment of performance by sales channel and product category, including the derivation of optimisation potential.
6. Organisation & personnel
   Assessment of the organisational structure with regard to decision-making capability and scalability, and analysis of key personnel, competencies and potential key-person risks.