When it comes to M&A due diligence, the numbers always get first attention — and rightly so. But they don’t tell the whole story. The truth is that the real value (or risk) of a transaction often lives outside the spreadsheets.
Here’s some practical advice, illustrated through a fictional, but highly realistic, scenario based on patterns from both successful and failed transactions.
The scenario: Evercore acquires AxisPoint. Evercore Data Solutions, a well-capitalized strategic buyer, is eying the acquisition of AxisPoint, a midsize SaaS firm. On paper, AxisPoint is a dream: 85 percent recurring revenue, sub-5 percent churn, 19 percent EBITDA margin. Due diligence begins with a standard checklist. But one voice in the room asks a different question: “Before we sign, do we actually know how this company runs — through its customers, its employees, and its leadership?” That question launched a people-focused diligence effort that significantly reshaped the deal team’s perspective.
- Customers: More than a contract. AxisPoint’s top accounts looked solid, boasting longstanding clients with multi-year contracts. But deeper review revealed single-threaded relationships (often tied to the CEO), inconsistent CRM usage, and no recent customer feedback data. Informal customer interviews and segmentation analysis revealed that while revenue was sticky, it wasn’t deep. Few clients had expanded services or multiple touchpoints.
- Adjustment: The team lowered revenue multiples for at-risk accounts and gave a slight uplift to those showing relationship depth, referral activity, and cross-sell success.
- Employees: Stability or silent risk? AxisPoint reported low turnover and a lean team. But organizational charts revealed overdependence on a few key technical leads — one of whom had already given notice. Engagement pulse checks and internal communications pointed to a culture stretched thin, unclear succession and uneven development opportunities.
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- Adjustment: A 7 to 10 percent EBITDA discount was applied to account for human capital risk. Retention packages for critical employees were factored into deal modeling.
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- Leadership: Capability and continuity. The CEO verbally committed to stay post-close but privately expressed fatigue. Other senior leaders were loyal but inexperienced in navigating change. Assessments showed misalignment with integration goals and potential friction in leadership transition.
- Adjustment: The team modeled a 0.5x EBITDA multiple reduction for potential integration friction. The team recommended a structured transition plan and executive coaching to support continuity.
While this case is fictional, the dynamics are real. If you’re evaluating an acquisition, don’t stop at the spreadsheets. Prioritize these actions:
- Conduct customer segmentation analyses, review renewal and referral rates, interview key clients, and assess expansion potential. Focus on customer lifetime value, net promoter scores, and relational depth.
- Review organizational health assessments, key-person dependencies, internal mobility, and engagement trends. Use tools such as the Employee Net Promoter Score and HRIS data on tenure, job descriptions, role clarity and internal mobility.
- Use 360-degree feedback summaries, develop executive team SWOT analysis, conduct cultural due diligence reports, and utilize behavioral and leadership assessment tools such Hogan, Wiley’s Five Behaviors of a Cohesive Team, and Working Genius.
Numbers may tell the story on paper, but it’s the people that make a business successful. Be sure you’re reading the whole book. ●
Judy Bodenhamer is Founder & Managing Director of Client Experience Group
