One of the easiest mistakes in commercial diligence is to confuse a compelling market narrative with a compelling investment narrative.

Healthcare markets can have powerful structural tailwinds: demographic growth, rising penetration, formalisation, technology adoption, insurance expansion, capacity constraints or changing care models.

But investors do not buy the market.

They buy a specific business model with a specific customer proposition, cost structure, competitive position, management capability and execution burden.

That distinction matters because a fast-growing market can still contain businesses that are poorly positioned to capture that growth.

I therefore find it useful to separate commercial diligence into three layers.

Layer 1: Is the market attractive?

This is the familiar part of diligence.

The work typically examines:

  • demand growth;

  • penetration;

  • pricing;

  • reimbursement;

  • regulation;

  • competitive intensity;

  • capacity;

  • customer behaviour;

  • and structural growth drivers.

The important discipline is to distinguish between three different types of growth:

Volume growth

Is demand actually increasing?

Value growth

Is revenue growing because of higher utilisation, pricing, premiumisation or mix?

Profit-pool growth

Is the underlying economic opportunity becoming more attractive, or is growth being competed away through discounting, higher operating costs or capital intensity?

These are not always the same.

A healthcare category can show strong volume growth while margins deteriorate. Revenue can increase while returns on capital remain unattractive. Capacity can expand faster than demand.

The diligence therefore needs to understand not just whether the market is growing, but how economic value is being created and distributed across the ecosystem.

Layer 2: Is the target structurally advantaged?

Once market attractiveness is established, the question changes.

It is no longer:

“Is the market growing?”

It becomes:

“Why should this company capture more than its fair share of that growth?”

Potential sources of advantage can include:

  • clinical reputation;

  • physician networks;

  • account access;

  • channel control;

  • referral relationships;

  • installed base;

  • proprietary data;

  • differentiated technology;

  • operating density;

  • purchasing scale;

  • customer retention;

  • or a superior economic model.

The diligence should test whether these advantages are:

Real

Do customers, clinicians and partners actually recognise them?

Durable

Can competitors replicate or neutralise them?

Economic

Do they translate into better growth, margins, retention or returns?

Transferable

Will the same advantages continue to matter as the company enters new cities, segments, channels or customer groups?

This last question is particularly important in healthcare.

A business may be highly successful because of local physician relationships, founder reputation, a favourable institutional contract or strong economics in one cluster. That does not automatically mean those advantages can be replicated elsewhere.

Layer 3: Can the investment case actually be executed?

A strategy can look attractive and still be a weak underwriting case if the growth plan requires too many things to go right at the same time.

I therefore prefer to make execution dependencies explicit.

The investment thesis may depend on:

  • opening new sites;

  • recruiting new doctors;

  • entering new cities;

  • launching new products;

  • increasing utilisation;

  • raising prices;

  • gaining institutional accounts;

  • expanding channels;

  • cross-selling;

  • completing acquisitions;

  • forming partnerships;

  • improving productivity;

  • or benefiting from regulatory change.

Each of these assumptions should be tested separately.

The key diligence question is:

Which assumptions are supported by evidence today, and which are simply embedded in the business plan?

The more the investment case depends on unproven assumptions, the greater the execution burden.

That does not automatically make the investment unattractive, but it should affect both the underwriting case and the value-creation plan.

The bridge to value creation

The best commercial diligence naturally begins to answer the first value-creation questions.

If the thesis depends on geographic expansion:

  • What makes new-site economics repeatable?

  • Which cities have the right demand density?

  • What capabilities must be replicated locally?

If the thesis depends on share gain:

  • Which customer segments are realistically winnable?

  • What commercial capability will create that share gain?

  • Where is the current sales model underperforming?

If the thesis depends on premium pricing:

  • What customer evidence supports the premium?

  • Which segments are willing to pay?

  • What differentiation protects that price point?

If the thesis depends on cross-sell:

  • Is there genuine overlap in customer need?

  • Does the organisation have the account-management capability to capture it?

  • Are incentives aligned across products or business units?

This is where commercial diligence becomes more useful than a simple market-attractiveness exercise.

It begins to connect:

underwriting → strategic priorities → execution requirements → value creation

The practical implication

I find the distinction between market growth and investable growth useful because it forces the diligence to move through three different questions:

  1. Is the market attractive?

  2. Is the target structurally advantaged?

  3. Can the investment case be executed?

A strong answer to the first question does not compensate for a weak answer to the second or third.

The most attractive healthcare investments are not simply those exposed to growing categories.

They are businesses with a credible right to capture that growth, attractive economics, durable advantages and an execution plan that can withstand scrutiny.

That is the point where a compelling market narrative becomes an investable growth thesis.