Key takeaways
- 85% of LMM deals include at least 3 external reference calls, most sellers don't prepare for them, and the information buyers collect directly influences valuation, deal structure, and whether the deal closes
- Reference calls are structured intelligence gathering: each question targets a specific risk (owner dependency, churn intent, pricing power, or capex deferral), and they are not casual relationship introductions
- Supplier calls surface what the income statement hides: extended payment term requests reveal working capital pressure, deferred maintenance requests reveal capex deferrals, and pricing concession history reveals negotiating leverage the seller overstated
- Customer churn intent is the most important reference call variable, forward spending intent is the clearest signal of revenue quality, and buyers adjust enterprise value based on what they hear in a 20-minute call
- You can notify customers and suppliers that a process is underway and that they may be contacted without coaching their answers, and that preparation is professional practice, and its absence creates more risk than the call itself
In this article
How to use this before a process
For adjacent context, compare this with What private equity buyers look for in middle market diligence and What Is a Data Room in M&A? Build It Early or Fund the Discount; the strongest operators connect these topics instead of treating them as separate workstreams.
In a lower middle market diligence process, buyers do not rely solely on the documents you provide. They call people: your top customers, your key suppliers, former employees, and sometimes your bank. These conversations happen with or without your knowledge, and the information they yield directly influences valuation, deal structure, and whether the deal closes at all.
Readiness Snapshot
What buyers will ask
What is ordinary-course working capital for this business?; Which months are distorted by seasonality, inventory, or collection timing?; How does the proposed peg change cash received at close?
What to prepare
24-month month-end working capital schedule.; Account-by-account inclusion and exclusion memo.; Seasonality, inventory, receivable, and payable normalization bridge.
85%
Lower middle market deals where buyers conduct at least 3 external reference calls during diligence
3 categories
Customer, supplier, and employee calls, each with distinct objectives and question sets
$0
What most sellers invest in preparing their reference contacts before the process begins
Buyers position these calls as routine relationship introductions. They are not. They are structured due diligence interviews designed to surface risks that would not appear in financial statements.
Why buyers conduct reference calls
Financial statements are backward-looking and seller-prepared. Reference calls provide buyers with forward-looking, third-party perspective on three questions that matter most: Will revenue continue post-close? Is the business dependent on the founder? And is there hidden risk in the relationships that hold the business together?
The answers to those questions are not in your CIM, your <a href="/insights/what-is-a-data-room-ma" class="subtle-link">data room</a>, or your management presentations. They come from the people who interact with your business from the outside. Buyers know this. Most sellers do not account for it.
The actual questions buyers ask customers
Buyers typically use a structured interview guide for customer calls. The questions are casual in tone but precise in intent. Here are the common categories and what each is really designed to surface:
"How long have you worked with this company?"
Measures relationship tenure and signals switching cost. A 5-year customer is different from a 6-month customer.
"How do you typically interact with the team?"
Identifies owner dependency. If every answer is "I work directly with [founder's name]," that is a red flag that concentration risk is personal, not institutional.
"What would have to change for you to consider other options?"
Directly probes price sensitivity, competitive vulnerability, and switching behavior. Buyers listen for hesitation or conditions.
"How has the relationship evolved over the past few years?"
Surfaces any deterioration in service quality, responsiveness, or relationship strength that would not appear in revenue data.
"How do you see your spend with this company changing over the next 12-24 months?"
The most important question. Forward spending intent is the clearest signal of revenue quality. Buyers adjust enterprise value based on what they hear here.
I mostly deal with the owner directly.
She knows our account inside and out.
Not sure what happens if that changes." This is a verbatim-style response that buyer diligence teams hear regularly. It translates directly into an owner-dependency risk finding that can reduce the offer price or require an extended seller employment agreement as a condition of close.
AI diligence angle
Run a short scan to identify reporting, data room, and workflow gaps that could affect diligence confidence.
Run an AI readiness scan →Supplier calls: what buyers are really looking for
Supplier calls are less commonly anticipated by sellers, but they surface some of the most operationally significant findings in diligence. Buyers use them to probe three areas: supply chain concentration and fragility, deferred maintenance or capex that did not show up in financial statements, and pricing concession history that reveals the business's negotiating leverage.
A supplier who reports that the company has been requesting extended payment terms for the past 18 months reveals working capital pressure that may not be visible in normalized EBITDA. A supplier who describes deferred equipment maintenance or repeated service calls on aging machinery reveals capex deferrals that buyers will model as future capital requirements.
Supplier calls often reveal what the income statement hides. A business that has been optimizing near-term EBITDA by deferring maintenance, extending payables, and reducing vendor commitments will look clean on paper and fragile in reference calls.
How to prepare without coaching inappropriately
Sellers have legitimate authority to inform their customers, suppliers, and employees that a transaction process is underway and that they may receive a call. That notification is not coaching, and it is professional practice. The line between appropriate preparation and inappropriate coaching is this: you can tell contacts what topics to expect, but you cannot tell them what to say.
Step 1: Disclose the process to key contacts
Inform your top 5-10 customers and key suppliers that you are in a transaction process and that a buyer's diligence team may reach out for a brief conversation about the relationship.
Step 2: Describe the format, not the answers
Tell contacts the call will be 20-30 minutes, focused on the nature of the relationship, and that honest feedback is appropriate and expected.
Step 3: Identify the relationships at risk
Any relationship where the customer is dissatisfied, where terms have been deteriorating, or where the future spend is genuinely uncertain should be disclosed to your advisor before the buyer discovers it in a reference call.
Step 4: Address problems before the call
If there is a customer relationship with unresolved service issues, resolve it before the process starts. Buyers discount forward risk disproportionately when they hear it from a third party rather than from you.
Step 5: Debrief after each call
Ask your advisor or the buyer's team which calls they've completed. A reference call that goes poorly is better addressed proactively than discovered at close.
Common mistakes founders make on customer reference call preparation.
Frequently asked questions
Can I ask customers not to participate in reference calls?
You can ask, but doing so typically signals to buyers that the relationships are fragile, which creates more risk than the call itself. A better approach is to prepare contacts for the process professionally and address any known relationship issues before the process begins.
What if a customer says something negative?
Negative reference call feedback is more common than sellers expect, and experienced buyers calibrate for it. One negative response is typically addressed through follow-up diligence. Consistent negative feedback across multiple contacts will affect valuation and deal structure.
Do buyers call employees?
Buyers more commonly call former employees rather than current employees during diligence, since current employee calls require careful handling. Former employees can provide candid perspective on culture, management, and operational reality that does not appear in the documents provided by the seller.
Work with Glacier Lake Partners
Build a reference call preparation strategy before you go to market
We help sellers prepare customers and employees for the reference process without creating liability.
Start a Conversation →AI diligence angle
See where AI can clean up readiness before buyers ask.
Run a short scan to identify reporting, data room, and workflow gaps that could affect diligence confidence.
Run an AI readiness scan →Research sources
Disclaimer: Financial figures and case-study details in this article are anonymized, composite, or representative examples based on middle market operating situations, and are not guarantees of outcome. Statistical references are drawn from cited third-party research; individual transaction and operational results vary based on business characteristics, market conditions, and deal structure. This content is for informational purposes only and does not constitute legal, financial, or investment advice. Consult qualified advisors for guidance specific to your situation.
Explore adjacent topics
