Why sub-$500M deals are chronically under-diligenced

Sub-$500M PE deals get under-diligenced. The economics almost guarantee it.

The math is simple. Full commercial due diligence costs $1–2M. For a $2 billion deal, that's a rounding error. For a $200 million deal, it's close to 1% of the transaction value before the deal even closes.

So PE firms do one of two things. They cut the diligence. Or they don't do the deal.

Neither is good.

This isn't a new problem. Middle-market and lower-middle-market deals have always been underserved by the traditional CDD model, and the firms most active in that space know it. The question is whether anything actually changes that. For most of the last decade, the answer was no.

The issue is structural. Top-tier diligence providers are built for large-cap deals where the economics work, the fees are proportional, and client relationships are built around that segment. The middle market gets served by a mix of regional boutiques, consultants running lightweight processes, and in-house analysts trying to do more with less. None of it is the same quality.

What that means in practice: firms are making $150–400M decisions on 20–30 expert calls and a secondary research package that leans heavily on public data. That's a sample problem. In a fast-moving market, it's also a timing problem. A traditional CDD process takes four to six weeks, which is a long time when a competitive process has a hard deadline.

The cost structure of commercial diligence hasn't changed much because the inputs haven't. Expert calls through traditional networks remain expensive, and a serious interview campaign means 30–50 calls minimum. Add analysis, synthesis, and a final deliverable and you're at significant spend before you've refined your view once.

Bridgetown Research’s proprietary AI platform changes the math in two places. The cost per interview drops because getting to the facts takes far less time. And the time to run 50 interviews compresses from two weeks to two or three days, not because quality drops, but because the process that was bottlenecked by human scheduling and transcription isn't anymore.

Bridgetown helps investors run more efficient diligence, narrowing the gap between diligence quality of large-cap and middle-market firms. We allow firms to underwrite more deals with more confidence, and ensure you don’t pass on deals you should have done. Learn more at bridgetownresearch.com/investment-firms