Commercial due diligence is where the mid-market valuation gap opens

Operators and investors,

A mid-market fund now spends 6 to 10 weeks in diligence on a platform deal, against 4 to 6 weeks at funds below $500M and 10 to 16 weeks at the megafunds. In the first half of 2026, longer diligence cycles measurably reduced how many mid-market processes converted, and valuation gaps that neither side would bridge kept marketed deals from closing (PwC's 2026 midyear deals outlook).

Buyers and sellers describe a valuation gap as a disagreement about price. Inside commercial due diligence, it usually surfaces as a disagreement about evidence, where the seller asserts a quality of revenue that the underlying data cannot support, and the buyer ends up pricing the uncertainty rather than the business.

First, the DD Checklist

Commercial diligence tests that assertion, sizes the market and the competitive position, then examines customer concentration, churn and net revenue retention, pricing power, and whether the pipeline in front of the buyer converts the way management says it does. A buyer paying 12 to 15 times EBITDA for a mid-market platform is underwriting the durability of those revenue streams, and the diligence exists to confirm the projected cash flows justify the multiple.

I have published a DD checklist for early reference for smaller PE firms available on https://mariopeshev.com/commercial-due-diligence-checklist-for-b2b-acquisitions/ 

This issue covers 4 topics:

• Why commercial diligence now reaches past market sizing

• Why customer concentration costs 1 to 2 turns of multiple

• Why the CRM and billing data cannot back the retention number

• What to fix in the 12 to 24 months before a sale

It is also written for sponsors running buy-side commercial due diligence on a mid-market target, and for CEOs who are 12 to 24 months from a sale, drawing on the RevOps and GTM work we run inside PE-backed companies.

1. Why commercial diligence now reaches past market sizing

Market sizing takes the least time in the scope, because a current buy-side commercial workstream spends most of its hours inside the customer base. It builds a top 25 customer concentration analysis and pulls every active customer contract to read the renewal and termination terms. The team then reconstructs historical churn and net revenue retention from billing data rather than from the deck, and runs 8 to 20 anonymous customer reference calls.

Those reference calls are where management narratives get tested against the customer's own account. A seller describing a strategic partnership and a customer describing a vendor they review annually are two different revenue streams, and the buyer underwrites the second version. Pricing power gets the same treatment, since a company that has never raised prices without losing volume has a different forward margin path than one that has.

Business services and industrials remain the active mid-market buy-and-build categories, and in both the commercial question is whether acquired revenue survives integration into the platform it joins. An add-on bought largely for its customer list is worth what that list renews at once the systems, pricing, and account coverage change, which is a different number from the one in the model.

2. Why customer concentration costs 1 to 2 turns of multiple

Customer concentration is the most common commercial red flag in mid-market deals and the most frequent reason a lower-middle-market process ends without a transaction. A business where two clients produce 60% of revenue carries a different risk profile from one where no single client exceeds 8%, and buyers price that difference directly.

Concentration above 30% on a single customer, or above 50% across the top five, is the standard threshold where the finding starts moving terms. Past that line, concentration risk commonly costs 1 to 2 turns off the valuation multiple. On a $10M EBITDA business at 12 times, those two turns are $20M of enterprise value.

A buyer who cannot move the headline price takes protection instead, holding back part of the consideration in escrow or tying it to the top accounts still renewing a year after close.

3. Why the CRM and billing data cannot back the retention number

Most of what commercial diligence asks for is a reporting question before it is a performance question. A buyer wants net revenue retention by cohort, revenue by customer over 36 months, contract terms in readable form, and pipeline conversion by stage and source. Each is a straightforward export from systems that have been maintained, and an archaeology project in companies that have not.

Those systems are rarely maintained in a mid-market company, where the CRM holds what sellers chose to enter and billing runs in a system nobody reconciled against it. Contracts sit in a shared drive without structured terms, and no one has owned the definition of churn long enough for a three-year series to hold together. The company can state its retention number and cannot evidence it, which reaches the buyer as an unsupported claim rather than a strong result.

A buyer facing an unevidenced retention figure rarely rejects it outright and rarely walks. The buyer discounts it, and the seller absorbs the difference between the number it believes and the number it can prove, which is how good performance turns into a lower price. The reporting and data work that produces defensible commercial evidence takes quarters to build and cannot be assembled inside a live process.

4. What to fix in the 12 to 24 months before a sale

The window that matters runs 12 to 24 months ahead of a sale, when the underlying data can still be rebuilt into a series a buyer will accept. A sponsor with that much runway can reconcile billing to CRM and settle the definition of retention once, then apply it backwards across three years. The same window is long enough to correct the concentration itself, by funding the commercial motion that adds accounts outside the top five.

This week, run a 45-minute commercial evidence review on the holding closest to a process. Three questions to think about:

1. What share of revenue sits with our largest customer and our top five, and how have those shares moved over the last 3 years.

2. Can we produce net revenue retention by cohort from billing data today, without a manual rebuild, and does it match the number in our board reporting.

3. If a buyer ran 15 anonymous reference calls across our top accounts, what would those customers say about renewal intent and pricing.

Score each one red, yellow, or green; a red on the second question is the one that becomes a discount, because it is the answer a buyer cannot verify and will therefore underwrite conservatively.

Mario

💻 AI ships the demo and stalls at the production system. Designs, MVPs, and mockups come fast now, which only widens the gap to a production-grade platform in finance, healthcare, or aviation.

📉 The buy-at-7x, hold-five-years, exit-at-9x model is gone. Deals now price at 11-13x with a 12-month EBITDA mandate, so the value-creation plan starts at LOI and Day 1 means execution.

💵 Working capital adjustments move enterprise value at signing. A $140M portco shows $8M in receivables but $4.2M sit over 90 days against a model assuming $6.5M, so the gap is a $1.5M haircut or a Day 1 cash problem.

🔧 A code-quality report rarely gives you a number to underwrite. Tech diligence has to answer whether the stack supports the thesis and what fixing it costs in cash and time, or the gap surfaces 18 months later as an unbudgeted re-platform.

🎙️ Founders track revenue and EBITDA growth but skip the Rule of 130, their age plus the share of net worth tied up in the business, where 40 plus 80% still leaves time to recover and 63 plus 90% does not, which is the real trigger for taking chips off the table. - by Adam Coffey

🎙️ Advent has built an IC AI robot, an observer trained on years of investment-committee memos that surfaces the questions the committee always asks, one of the more concrete uses of AI inside a fund rather than a portfolio company. - by Hugh MacArthur

🎙️ The language of a "merger of equals" is a common source of value loss, because when both sides still believe they call the shots you build the conditions for post-close conflict, and clear lines of authority beat the comfortable fiction. - by Kison Patel

🎙️ Six months into a leadership cohort for Rallyday Partners portfolio-company executives, the peer group drove more growth than the curriculum, which is the part most portfolio talent programs underbuild when they lead with content. - by Dan Cremons

🎙️ AI advisory demand across BluWave's network rose 193% year over year in Q2 2026, and almost none of it asks whether to use AI, since the questions are now about how to execute, which makes the constraint operational. - by Sean Mooney

🎙️ Manufacturers say they cross-train to remove key-person risk, but most stop at a box-check where someone shadows an expert for a shift and call it mitigated, which is exactly the exposure a buyer's operational diligence should test. - by John Stewart

🎙️ Most PE strategy decks would change logos unnoticed, since buy-and-build, operational improvement, and margin expansion fill every firm's "differentiated thesis," which leaves most funds holding a PowerPoint with better manners. - by Lee McCabe

🎙️ Calling a 13x EBITDA purchase "a good deal" misses that deals of $25M to $100M trade at 8.8x while $500M to $1B deals trade at 13.4x, a gap that widened from 3.4 to 4.6 turns even as the smaller band returned a higher pooled IRR since 2009. - by Haktan Tuna Yilar

🎙️ Residential roofing has become one of the most active PE consolidation markets in home services, with 40+ backed platforms, 240+ companies acquired, and one deal every 48 hours at the mid-2025 peak before several consolidators began slowing. - by Andrew Allred

Automated employment decisions are now a regulatory liability. The Dutch regulator is fining Uber €825M, about $966M, for deactivating drivers by algorithm without human review, and any portfolio company automating hiring, suspensions, or gig-workforce calls shares that exposure.

Benefits inflation keeps beating the budget. Employers expect healthcare costs to rise a median 9.2% in 2027, about double general inflation, after actual costs topped forecasts three years running, so it belongs in the model as a standing EBITDA drag.

AI purchases need deal-grade diligence. Healthcare CFOs are pitched revenue-cycle AI on lower denials, but most contracts get judged on features and price while data readiness, workforce redesign, and governance decide whether the spend pays off or writes off in 18 months.

AI assistants are closing the gap between research and execution. Anthropic merged Claude's memory across its chat and Cowork modes so it carries context from planning into the work, which means less rebriefing and a new need for a policy on what deal data these tools store.

Award Winning Brand Design Agency: 5-year-old full-service brand and design agency offering brand identity, logo design, brand guidelines, design systems, and web and app design to global clients. Won an ODA award, an Awwwards Honorable Mention, and four CSS Design Awards honors. $340,000

Top-rated UK Exam Prep iOS & Android App: 4-year-old UK citizenship exam prep app with a 4.8-star rating, monetized through in-app subscriptions and one-time premium purchases on a freemium model. $891,000

Award-winning Lawsuit Payout iOS & Android App: fast-growing 4.7-star mobile app helping users discover and claim money from class action lawsuits, and Grand Prize Winner of the Shipaton 2025 "Build & Grow Award". $2,655,000

AI-powered Messaging SaaS: 13-year-old communication and transaction SaaS that has facilitated over 321M authentic messages between creators, brands, and their audiences, built on a battle-tested architecture for high-volume institutional messaging and automated financial workflows. $5,000,000

For PE partners and operators seeking alpha

🌐 Scaling $50M - $500M+ mid-market companies with value creation through RevOps, data engineering, and WordPress. DevriX provides full RevOps consulting + delivery with GTM enablement for PE-backed portfolio companies, traditional tech, healthcare, finance, and professional service businesses pacing toward revenue growth initiatives. Our standard retainers between $10K and $60K include revenue lifecycle services for marketing and sales leaders, FP&A for financial teams, pipeline enrichment through websites and dozens of lead sources, automations and delivery integrations, CRO and ongoing testing, product delivery and platform integration solutions, and more through our consulting solutions.

🚀 1:1 Advisory retainers. Supporting operating partners, private equity funds, family offices, and mid-market executives in different capacities, from value creation through due diligence to portfolio digital GTM management in my async advisory programs via Growth Shuttle.

📈 GTM while scaling. European and international businesses can opt in for doola LLC and their “Business in a Box” model. Scaling founders can find smaller digital opportunities on Flippa. And additional opportunities across my investments can be found here.