Private Equity Firms Can’t Afford to Skip Customer Diligence
Here’s a fact that might surprise you: the majority of announced M&A deals never even make it to closing.
Why? Well, research shows:
- 42% of canceled deals fall apart due to valuation disagreements, often triggered by diligence findings that undermine the seller’s financial claims.
- The next most common reason for a deal breakdown is a weak management team, which raises concerns about the ability to execute the value creation plan and navigate challenges post-acquisition.
- Finally, poor customer relationships and high churn are the #3 reasons a deal doesn’t make it to close.
Despite these facts, customer diligence is consistently overlooked.
At T4 Associates, we hear it all the time when clients come to us for diligence work: "If only we had known that earlier…"
The reality is, skipping customer diligence isn’t just a missed opportunity—it can be a costly mistake.
The Risk of Overlooking Customer Diligence
Customer diligence goes beyond validating financials—it helps answer the fundamental question:
Is this a business customers want to stay with, grow with, and pay for?
Without clear answers, private equity firms risk walking into deals where:
- Forecasted revenue streams are unstable.
- Management’s narrative is overly optimistic—or worse, misleading.
- Value creation levers are built on shaky assumptions.
In fact, in 15% of the deals we support, our work has surfaced findings significant enough to cause investors to pause, regroup, or even put pencils down.
That’s because the top insights that customer diligence can reveal are impactful, things like:
- Unethical or questionable practices that threaten reputation and compliance.
- Customer dissatisfaction and churn risk—clients actively seeking to switch providers.
- Competitive threats—established rivals gaining traction, or new entrants in the market, often overlooked in management’s narrative.
- Weak new product launches—customers unimpressed with innovation pipelines.
- Price sensitivity and downward pressure—undermining margin assumptions.
Each of these issues has the potential to alter valuation, derail deal rationale, or materially change your investment strategy - and without customer diligence you might be blind to them.
If you don’t want to be blindsided in your next deal, or you’ve ever looked back on a deal and thought, “I wish we had uncovered that sooner,” consider customer diligence.
Not sure where to start? Connect with us today to hear more about how customer diligence works and gain some peace of mind knowing you truly did your diligence.
