Customers in the Value Creation Playbook: Why Private Equity Needs Customer Diligence

In private equity, the value creation playbook has evolved. 

Today's sophisticated investors know that the customer base is the ultimate driver of value.

They are a core strategic asset—the determinant of cash flow stability, growth potential, and long-term enterprise value.

This shift has elevated customer diligence from an afterthought to a critical bridge: linking financial diligence (the “what”) with commercial diligence (the “so what”).

Commercial Diligence Vs. Customer Diligence

Many private equity firms already run commercial diligence studies. 

These are valuable—they size the market, assess growth prospects, and benchmark competitive dynamics. As part of that process, they often include a handful of customer interviews.

But here’s where commercial diligence lacks, according to firms we’ve spoken to:

• Market focus over company focus. The interviews help explain the industry—but not how this specific company is performing with its customers.
• Not enough interviews. A few conversations can’t capture the breadth or depth of customer sentiment.
• Limited detail. Because these interviews are often blind or not sponsored, company-specific insights get washed out.

The result? Firms walk away with a broad view of the market, but not the true health of the revenue stream they’re about to acquire.

Customer diligence, on the other hand, takes a more rigorous and targeted approach.

Instead of being an add-on to commercial diligence, it is its own discipline, designed to uncover:

• Customer loyalty and churn risk. Are customers staying, expanding, or quietly slipping away?
• Share of wallet dynamics. How much of a customer’s spend does the target capture—and is there room to grow?
• Competitive threats. Are rivals making inroads, and if so, how vulnerable is the customer base?
• Product and service performance. How do customers really rate innovation, service, and delivery?
• Price tolerance. Are customers willing to pay more, or are they pushing back on margins?

These customer diligence studies go deeper, with more customer interviews, broader topic coverage, and sharper focus on company-specific performance. 

The goal is not just to validate the market, but to illuminate the outlook for this business’s future.

The New Value Creation Playbook 

In today’s market, the health, stability, and loyalty of a target company's customers are the ultimate determinants of its future cash flows. 

Consequently, sophisticated private equity firms have moved beyond superficial analysis, employing rigorous customer diligence methodologies to dissect the customer files and uncover the true quality of revenue streams. 

If you’re one of those sophisticated firms, and you need a partner to run your customer diligence, get in touch, we’d be happy to help. 

‍