Asset management and funds
Commercial due diligence (CDD)
Checking the market and competitive case behind an investment before the deal.
Facts checked against sources onWhat does Commercial due diligence (CDD) mean?
Commercial due diligence is the part of due diligence that tests the business story: how big and fast-growing the market is, how strong the company is against competitors, whether customers are happy and loyal, and whether the management plan is believable. It is one of the most common pieces of work consulting firms do for private equity. It usually runs for a few weeks and uses customer interviews, surveys, market sizing and a review of the business plan. Example: a PE fund plans to buy a school chain assuming 12 percent yearly growth; the CDD finds the local market growing 6 percent and share gains unlikely, so the fund lowers its price or walks away. Financial, legal and tax due diligence are usually done by other advisers.
Where does it come up in case interview prep?
Related terms
- Due diligenceCareful checking of a target before you buy it.
- Market sizingEstimating how big a market or quantity is.
- TAM, SAM and SOMTotal market, the part you can serve, and the part you can win.
- LBO (leveraged buyout)Buying a company mostly with borrowed money.
- Competitive advantageWhat lets a firm earn more than its rivals over time.
- Assets under management (AUM)The total market value of the money a firm manages for clients.
- Net flows (net new money)New client money coming in minus money taken out.
- Active versus passive investingTrying to beat the market versus simply tracking it at low cost.
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