Why should commercial due diligence look inside the sales team?
Commercial due diligence mostly looks outward. KPMG Ireland's strategy team wrote in 2022 that much of its focus is the commercial context outside the target. The sales team sits inside, along with the relationships that renew the revenue.
Customer losses still slip through. Aon, an insurance broker, tracks claims on the representations and warranties insurance bought in acquisitions. In its Global Claims Study 2026, material contracts breaches made up 21 percent of paid losses on North American policies placed since 2019. Aon says those payments mostly trace to losing a material customer, or a material drop in business with one, that was indicated before closing and left undisclosed. The data comes from Aon's own anonymized claims records.
People carry part of that exposure. In a 2017 study of one Fortune 500 company, Shi, Sridhar, Grewal and Lilien found that sales rep departures led to losses of 13.2 to 17.6 percent in annual sales from the customers involved.
What should commercial due diligence ask a sales team?
Put these to the management team and its sales leader. The way an answer is built tells you as much as the figure in it.
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How much of revenue renews, and how do we know?
A services deal is often priced on its recurring revenue, and that word stretches easily. Listen for whether management means agreements with a term and a renewal date, or customers who happened to buy again last year. Both can be good revenue. They behave differently once the owner changes. Aon's 2026 study notes that in software and technology deals, misstatements about renewal rates and pricing have hit revenue. A book of service agreements can be overstated the same way.
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Which customers and relationships would leave with one person?
In commercial services, a property manager may renew because of one account manager or the founder. In a 2007 study of 362 buyer and salesperson pairs in industrial markets, Palmatier, Scheer and Steenkamp found that loyalty owned by the salesperson lifted sales growth. It also raised the selling firm's risk of losing business if that salesperson left for a competitor. Listen for the largest accounts named one at a time, each with the person the customer trusts, and notice how often the founder's name comes up.
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How has the forecast compared with results over the last several quarters?
A forecast record shows how well management knows its own business. Reach back to quarters before the sale process began, because the quarters closest to a sale carry the most pressure to look good. Aon names channel stuffing, which overstates revenue inside the trailing twelve months, as a consistent revenue recognition issue in its claims. Listen for each miss explained with named deals and a cause, and notice whether the misses all lean the same way.
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What is the pipeline made of, and what have buyers done on the largest deals?
The pipeline carries the growth case from this year's revenue to next year's. Renewals and new bids carry different odds, and a single total hides the mix. A handful of large bids can carry most of the growth. On each of those, listen for something the buyer has done, such as approving a scope or setting a decision date, and treat a bid held up by a seller's confidence alone as a hope in the model.
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Where did last year's new agreements come from, and who found them?
A growth case that needs more new agreements than last year needs a team that can find them. Growth that came from price increases or the founder's network says little about what the sellers can do on their own. Listen for sources of new business that more than one seller has used. The strongest ones would still work after the founder steps back.
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Who on the sales team would we need to keep, and what keeps them?
Start from the customers. The people worth keeping are the ones the largest accounts trust, and they may sit well below the top of the bookings report. Shi and coauthors found that new hires limited sales losses less well than existing reps after a departure, and reps with high past performance did no better at it than average or low performers. Listen for what each key person expects to change after closing, and whether management has asked them.
"What would we have to believe about this sales team for the deal model to hold?"
Every line of a deal model assumes something about customers and the people who hold them, so this question gathers the six above into one. Name each belief in plain words, such as renewals holding through a change of owner or new agreements arriving without the founder. The beliefs nobody can support are the work, and the cost, of the first 100 days.
What are the signs of a sound sales team in due diligence?
Good signs
- Management describes recurring revenue in agreements and renewal dates.
- The largest relationships rest with more than one person, and the customer knows both.
- Past forecast misses come with named deals and a cause, and they fall on both sides of the number.
- The largest bids rest on things customers have done.
Warning signs
- The recurring figure comes from billing history, and nobody can point to the agreements behind it.
- One name sits on most of the largest accounts.
- Every miss has a fresh explanation, and every miss runs the same way.
- Last year's growth came from price, and the plan credits the sales team for it.
Case study Fictitious numbers
A private equity firm is bidding for a commercial landscaping company with $40 million in revenue. The marketing materials call 80 percent of that revenue recurring, or $32 million, and the first draft of the deal model prices it that way.
The deal team asks how much of the revenue renews and how management knows. Maintenance agreements with a term and a renewal date cover $22 million. Another $10 million is enhancement work, such as plantings and irrigation upgrades, that agreement customers order most years with no agreement behind it. Management counted it as recurring because the same customers bought it last year. The last $8 million is snow and ice work billed per event, and it follows the weather.
- Maintenance agreements with a renewal date
- Enhancement work customers choose to buy again
- Snow and ice, billed per event
The $10 million may well repeat. It repeats through the people who sell it today.
So $22 million, or 55 percent of revenue, renews under agreements. The $10 million may well repeat. It repeats because customers choose to buy it again, usually through the account manager who looks after their property.
The company is no weaker for any of this. The model now has to believe that the $10 million keeps coming after the sale, through the same people who sell it today. That belief leads straight to the question of who the buyer needs to keep.
FAQ
What does commercial due diligence cover in a private equity deal?
KPMG Ireland describes commercial due diligence as a way to understand a target from a commercial perspective. It sizes the markets the target serves and tests management's business plan against them. Advisers also gather outside views of the competition. A potential buyer, typically a private equity house or a corporate, or a lender usually commissions it, and some sellers commission their own. The sales team questions in this guide add the inside view.
How is commercial due diligence different from a quality of earnings review?
A quality of earnings review tests the earnings themselves. The Corporate Finance Institute, a training provider, calls it a routine step in private acquisitions that assesses how a company accumulates its revenue, including whether that revenue is recurring or nonrecurring. Commercial due diligence tests the market and the growth case. Sales team questions sit between the two. They ask whether the customers and people behind last year's revenue will produce it again under a new owner.
Why does customer concentration matter when buying a company?
Concentration makes revenue depend on a few decisions. A 2016 study in the Journal of Accounting and Economics by Dhaliwal, Judd, Serfling and Shaikh found a positive association between customer concentration and a supplier's cost of equity. The link was stronger for suppliers more likely to lose major customers, and a concentrated base of government customers went with a lower cost. The study measures an association. In services, concentration can sit in people as well as customers.
Do service agreements protect revenue after an acquisition?
An agreement sets the terms until it renews. The renewal is still the customer's choice, and in services that choice can follow the person who looks after the account. Agreements that come up for renewal soon after closing put the choice in front of customers while the new owner is still a stranger to them. Legal diligence covers termination and assignment terms. The commercial question is whether the customer wants to stay.
Sources
- What is commercial due diligence? KPMG Ireland, 26 Jul 2022 checked 10 Oct 2026
- Transaction Solutions Global Claims Study 2026, Aon (insurance broker research) checked 10 Oct 2026
- Sales Representative Departures and Customer Reassignment Strategies in Business-to-Business Markets, Shi, Sridhar, Grewal and Lilien, Journal of Marketing, 2017 checked 10 Oct 2026
- Customer Loyalty to Whom? Managing the Benefits and Risks of Salesperson-Owned Loyalty, Palmatier, Scheer and Steenkamp, Journal of Marketing Research, 2007 checked 10 Oct 2026
- Customer concentration risk and the cost of equity capital, Dhaliwal, Judd, Serfling and Shaikh, Journal of Accounting and Economics, 2016 checked 10 Oct 2026
- Quality of Earnings Report, Corporate Finance Institute, 2019, updated 2026 checked 10 Oct 2026