David Marchetti
Senior Partner · April 14, 2026
Standard buy-side due diligence in the mid-market follows a predictable script: quality of earnings, tax structuring review, environmental scan, legal representation and warranties review. This work is necessary. It is not sufficient. The deals that underperform after close - and in our experience, a meaningful plurality of mid-market deals do - almost never fail because of something that a QofE would have caught. They fail for operational and cultural reasons that traditional due diligence frameworks are structurally blind to.
The most frequently missed issue is customer concentration risk that doesn't appear in the financial model. A business may show 85% gross margins and strong EBITDA growth, with no single customer exceeding 15% of revenue on paper. But a commercial diligence process that actually talks to those customers often reveals a different picture: three customers generating 40% of revenue who have personal relationships with the founders, aren't under contract, and would be open to reconsidering their relationship if ownership changed. This isn't in the CIM. It usually doesn't emerge from management interviews. It comes from actually speaking with customers.
The second most common blind spot is management team depth. Mid-market private equity deals frequently model out the departure of one or two key executives as a risk, but the diligence rarely goes deep enough to assess whether the second tier of management - the people who will actually run the business post-integration - has the capability to execute the value creation plan. We have seen several deals where the investment thesis was essentially dependent on a CFO or VP of Sales who left within 18 months of close, and the team beneath them had neither the experience nor the capacity to fill the gap.
Operational due diligence - examining the actual operating model rather than the financial model - is the third systematically underdone piece. What systems does the business actually run on? How mature are its pricing processes? Is its supply chain resilient or fragile? Are there inventory or customer service quality issues that don't show up in the trailing twelve months of financials because the current owner has been managing them manually? These questions require operational expertise to ask and answer, and they're rarely part of the standard banker-led diligence process.
Our approach is to run a parallel commercial and operational diligence workstream alongside the standard financial and legal processes, with a focus on the three to five risks that could actually impair the return profile of the transaction. We size those risks in dollar terms - the expected impact on EBITDA, enterprise value, or integration cost - and we feed that analysis directly into the purchase price discussion and the post-close integration plan. The deals where we add the most value are the ones where our diligence either prevents a bad acquisition or gives the buyer the information they need to negotiate a more appropriate price for the risk they're taking on.
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