Strategic Due Diligence: Market and Competitive Analysis
Even if a company's financial statements look flawless, if it operates in a declining market, those statements misrepresent the future.
Verifying market size and growth rate
Strategic due diligence cross-checks management's presented market size and growth forecasts against independent sources (industry reports, third-party research); relying on management's own projections isn't considered sufficient.
The gap between the total addressable market (TAM) and the market the company can realistically reach (SAM) is usually where growth scenarios get most overstated.
Assessing competitive position with concrete evidence
Whether the competitive advantage a company claims (price, technology, brand, distribution network) is genuinely sustainable is tested against competitor behavior and market share trends.
If market share is steadily eroding while contradicting the company's competitive advantage narrative, the source of that inconsistency needs to be investigated in depth.
The value of independent customer calls
Independently conducted customer reference calls reveal whether the customer satisfaction and retention rates management presents are actually verified.
These calls typically catch early warning signals invisible in financial statements, such as pricing pressure or a customer shopping for an alternative supplier.
Mapping regulatory and technological disruption risk
Upcoming regulatory changes or disruptive technological developments that could affect the sector directly impact the business's long-term value, even if they don't show up in financial projections.
Mapping these risks clarifies which assumptions the buyer's investment thesis rests on and provides a basis for designing protective clauses in the negotiation.
Integrating findings into the financial model
The most critical step in strategic due diligence is translating the market and competitive findings concretely into the financial model; otherwise the findings stay just a report and don't influence the decision process.
For example, once a contracting market is identified, that finding needs to convert into a direct downward adjustment in revenue growth assumptions.
Financial and Strategic Due DiligenceWe bring out the reality behind a target company's numbers and name the risks the buyer will have to price.
Learn moreFrequently asked questions
Who carries out strategic due diligence?
Typically management consulting firms or boutique advisory firms with sector-specific expertise, working in parallel with the financial due diligence team.
Is this analysis necessary on every deal?
It matters more in deals within highly competitive sectors or ones undergoing rapid technological change; its scope can be narrowed in stable, mature sectors.
Do customer calls carry confidentiality risk?
This risk is managed by conducting the calls under a general market research framework, without disclosing the existence of the deal.
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