The Diligence Gap

The diligence gap is what opens when an operating plan inherits the levers of value creation but loses the investment thesis that made them one asset.

Two rooms, one business

In the months before an acquisition, a company is discussed as a whole. The investment committee talks about market position, customer quality, pricing power, reputation, loyalty, differentiation and resilience. It asks why customers choose the company, what they might pay more for, how easily a competitor could displace it and whether demand will survive a change of ownership.

These are brand questions, whether or not anyone uses the word.

The committee does not pay a premium for a logo. It pays for an expectation about the future. Some of that expectation can be separated into trade marks, customer relationships, technology or other identifiable assets. Some may contribute to residual goodwill alongside synergies, workforce and going-concern value.

The accounting categories matter but they are not the argument. The argument is that the committee values something beyond inventory, machinery, contracts and cash it can identify individually.

Then the deal completes Monday morning.

The value-creation plan arrives: procurement, working capital, reporting systems, technology, sales effectiveness, pricing, restructuring, EBITDA and cash.

No one has changed their mind. Customers have not forgotten the company over the weekend. Its reputation has not evaporated, and its position in the category is unchanged from the Friday prior.

But the grammar has changed.

Before completion, the company was described through the qualities that made it worth owning. After completion, it is divided into the functions through which it will be operated.

Why the handover matters now

Ocean Tomo estimates that intangible assets accounted for approximately 92 per cent of S&P 500 market capitalisation at the end of 2025, against 17 per cent in 1975. That is not a measurement of brand. The study derives intangible value by subtracting net tangible asset value from market capitalisation, so the figure includes the full range of intangible advantages. It nevertheless establishes where modern enterprise value increasingly sits.1

Private equity is paying more for those businesses while finding the old return machinery less dependable. McKinsey reports that the median purchase multiple reached a record 11.8 times EBITDA in 2025. More than 16,000 portfolio companies, representing 52 per cent of buyout-backed inventory, had been held for longer than four years. Buyout funds returned about 7 per cent in 2025, against 18 per cent for the S&P 500 and 22 per cent for MSCI World.2

Operational value creation is no longer the reassuring paragraph beneath the model. It has become the model. This puts greater pressure on the handover between what justified the purchase and what management is subsequently able to operate and effect.

Accounting can separate the pieces. It cannot run the asset.

Coca-Cola's purchase of Costa offers a neat illustration. The company paid $4.9 billion, net of cash acquired. Its final purchase-price allocation assigned $2.4 billion to the Costa trade mark and $2.5 billion to goodwill. Coca-Cola associated that goodwill with international expansion, distribution through its bottling system and an assembled workforce that did not qualify for separate recognition.3

Goodwill is what remains after identifiable assets and liabilities have been recognised at fair value. It is not a synonym for brand. Brand may be separately valued and still sit beside a substantial residual containing several different expectations about the future.

Yet the filing leaves management with another question. How should the trade mark, customer expectations, distribution potential, people and growth thesis be operated together after completion?

The balance sheet can name and value parts of the acquisition, but it cannot preserve the commercial logic that connected them. That responsibility passes to diligence, the operating plan and the people who manage the hold.

Brand is everywhere in diligence

It would be easy to argue that private equity overlooks brand during diligence. It would also be wrong.

Our review found brand-related evidence spread across seven distinct diligence and operating categories:

• Commercial diligence examines customer behaviour, buying criteria, willingness to pay, retention, competitive advantage, market position and growth.
• Financial diligence examines the quality and durability of the earnings those customers produce.
• Operational diligence asks what must change under ownership for the thesis to be realised. Operational diligence also tests whether the business works as represented, or is being sustained by exceptions a new owner cannot repeat.
• Technology diligence examines whether systems, data and product can support the promised growth and experience.
• People diligence asks whether leadership, talent and culture can carry the investment thesis.
• Legal diligence examines intellectual property, contracts, reputation and material risk.
• Sponsor operating teams work across customer insight, segmentation, channel, product extension, digital capability and marketing return.4

Every constituent effect of brand appears somewhere. The language is commercial, financial, legal or operational, but the substance is clear and present.

The issue isn’t analytical blindness. Modern operational diligence is explicitly intended to test the investment thesis and translate findings into an actionable value-creation plan. Strong operating teams already know how to work across pricing, customer, product, digital and channel.4

Diligence divides the company into questions each discipline can answer. Value-creation plans assemble actions from those answers, but less often reassemble them as one owned and governed programme. What has no standard form is the continuing account of the asset those actions collectively preserve or compound. The management team that will run the business should help shape that work. The process must still preserve independent challenge and connect post-close measures to what was underwritten.

Brand is seen, then is lost in translation.

The thesis changes hands twice

There are, in fact, two handovers.

The first is from seller to buyer. The seller's equity story explains why the business matters, where future growth might come from, why its assets belong together and why another owner should pay a premium.

The buyer's investment thesis translates that story into a different set of questions. Which advantages are real? Which are durable? What can this owner improve? What risks must be underwritten? How will value be realised during the hold?

The second handover is from buyer to operator. That separation is not the ideal. In a well-run transaction, the people who will operate the business help shape the underwriting before completion. The value-creation plan must translate the investment thesis into changes management can make, sequence, fund and measure.

The gap can appear at either point. Part of the seller's future may fail to survive the buyer's underwriting; or the buyer's thesis may then fail to survive the operating plan.

The transaction can preserve every major workstream while losing the connection between what the seller promised, what the buyer underwrote, and what management was asked to build.

At entry:

• Pricing power is part of the reason the company deserves its multiple. During the hold, it becomes a pricing workstream. Diligence must distinguish durable willingness to pay from a pre-sale price increase whose effect on customer behaviour has not yet worked through.
• Loyalty supports the quality-of-revenue case. During the hold, it becomes retention.
• Reputation reduces perceived risk and makes future growth more believable. During the hold, it disperses between customer service, communications, legal and risk.
• Differentiation may explain current outperformance. Diligence must also test whether the underlying advantage is durable or readily copied.

Each translation is reasonable in and of itself. Pricing needs an owner. Retention needs a measure. Reputation creates obligations across the company. Positioning sometimes needs evolution, not revolution. A company cannot be run as one enormous abstraction called brand.

Trouble begins when the parts stop returning to the original thesis.

A pricing decision may improve short-term volume while weakening the reason customers paid more. A channel expansion may increase distribution while degrading the experience that justified the position. A product extension may grow revenue while blurring the category claim that made the extension credible. A cost programme may improve this year's margin by borrowing from next year's preference.

Every initiative can make sense on its own. Together, they can undermine the asset bought.

The diligence gap is the loss of continuity between the reasons for buying the business and the way the business is subsequently run.

The gap can also open inside a company's own story, not only when ownership changes.

Copying an innovator is not the same as building the capacity to innovate

Cazoo began with an act of intelligent imitation. Alex Chesterman was open about drawing on Carvana, the American online used-car retailer, and adapting its model for Britain. He described himself as "not an innovator, just a copycat", having previously found American precedents for LoveFilm and Zoopla.5

Copying a proven innovation was not the problem. It allowed Cazoo to move quickly, organise considerable investment around a clear proposition and establish an online customer experience in a category many assumed would remain stubbornly physical.

What struck me while working on it was the difference between creating that initial experience and sustaining its development.

The pre-launch and launch proposition received intense attention. Once the model was in market, the operating task naturally shifted towards scale, customer acquisition, inventory, logistics and execution (arguably before). The customer experience increasingly risked becoming a specification to reproduce rather than an advantage to keep renewing.

That observation does not explain Cazoo's subsequent failure. The causes were larger, more numerous and more consequential. It supports a narrower conclusion: importing an innovative model does not create an institutional capability for continued innovation. Unless ownership, capital and a roadmap survive the launch, yesterday's innovation becomes tomorrow's operating standard.

Copying an innovator can accelerate entry, but it cannot substitute for the continuing capability to innovate. Here the handover was a question of time as much as ownership.

The whole has no default owner

This creates a peculiar form of organisational orphanhood.

The CMO may own the expression of the brand but not the price.
The commercial director owns the price but not the product.
The product team owns the experience but not the customer promise.
Operations owns delivery but not the expectation against which delivery is judged.
The CFO owns the capital, but not necessarily the combined mechanism through which the expenditure is expected to create value.
The CEO and board remain accountable for the whole. Accountability alone does not create a way to manage it as one asset.
Founders and portfolio CEOs often carry the customer promise, product logic, future story, operating trade-offs and capital decisions in one head, and feel its fragmentation first.

The whole may have an owner only because one person is compensating for the absence of a system. That becomes vulnerable as the company scales, attention fragments or ownership transfers.

I have spent twenty years on both sides of this boundary. At places including Ogilvy, Zag/BBH, and Publicis Sapient, I helped produce the strategies and programmes companies commissioned. As an operator, I then had to confront the questions beyond the strategy: what gets funding allocated, who owns the dependencies, how long the effect is allowed to take and what evidence justifies carrying on.

The gap is not intelligence. The people on both sides often have their brief in hand. The first system is designed to produce a strategic answer. The second needs that answer in a form it can own, operate, fund and revise. Too much is lost in translation between the two.

There are important exceptions. Strong management teams make the connection deliberately. Experienced consumer investors recognise it quickly. Some businesses have the data and operating rhythm to link preference, behaviour and economics with remarkable clarity.

But there is no default handover. The qualities identified at entry can survive as a collection of initiatives without surviving as one managed investment thesis.

When the handover works

I saw the positive version during the creation of Refinitiv. I was strategy director at its agency, TBWA\London, after the Financial & Risk division was carved out of Thomson Reuters and required a new account of what the independent business was, and more importantly what it could become.

The company did not lack substance. It possessed an exceptional body of financial-market data, research, trading, risk and infrastructure capability. The danger was that the new company would continue to be understood through a contest whose terms had already been set elsewhere.

Bloomberg was and is a focused, commercially formidable business, with strong emphasis on its market leading terminal. Thomson Reuters Financial & Risk had broader assets, but they sat inside a large institution whose scale did not always produce the dynamism required to organise and pursue the opportunity. It had its strengths but it was quite another beast.

Financial markets were also changing. More activity was electronic, quantitative and algorithmic. Data was increasingly created and consumed by machines, and used across a wider set of workflows.

The organising thought was simple: Data is just the beginning.

Data still mattered. Its strategic value lay in what customers, products and machines could do with it.

That frame affected more than the corporate story. It gave product and sales teams a different account of the business, including teams working across trading, artificial intelligence and data science. It allowed capabilities that had previously appeared as a collection of products to be understood as part of a wider infrastructure for the emerging modality of finance.

The effectiveness case published by the IPA later reported improved brand attributes and sales conversion, estimating a 10.1 per cent increase in lead-to-sales conversion during 2019 and $2.30 of incremental revenue for every dollar invested. Those figures concern the launch programme, not the total enterprise transformation. They corroborate that the frame travelled into the commercial system.6

The strategy neither created the underlying assets nor produced the carve-out, executed the operational transformation or caused the eventual transaction. In plain terms, it made the latent whole easier to see.

When LSEG announced its proposed $27 billion acquisition, it described Refinitiv as a financial-market infrastructure provider with data, analytics, distribution and execution capabilities across asset classes, customers and geographies. The acquisition case centred on open platforms, wider market infrastructure and future data and technology-enabled innovation, not on winning back a now conceded terminal contest.7

A clearer position connected existing capability to a more valuable future, gave the organisation a wider field of action and helped make that future intelligible to a strategic buyer.

Moonpig provides a different kind of evidence because the connection is visible in its operating and financial model. Exponent's entry rationale cited a strong brand, market leadership, customer insight and lower customer-acquisition costs. Today Moonpig reports about 70 per cent of the UK online-card market, 113 million customer reminders and 1.2 million Plus memberships. Nine-tenths of group revenue comes from existing customers, supporting adjusted EBITDA margins above 25 per cent.8

Trust becomes repeat behaviour. Repeat behaviour becomes cohort value. Cohort value reduces dependence on paid acquisition.

The financial model carries the brand thesis when its effects are visible in price, retention and acquisition efficiency, rather than being left in a separate presentation.

Neither Refinitiv nor Moonpig proves a universal formula. One is a first-hand account of strategic reframing with bounded commercial evidence. The other is a company-reported operating model. Together they show what continuity can look like: the qualities that make the business valuable remain legible as the organisation acts on them.

Continuity also needs revision. An explicit thesis can be wrong, or become out-of-time, as conditions, costs and evidence change. Stewardship is not an act performed once at entry, but is measured in time.

The handover with no standard form

A deal thesis explains why the company is worth owning, whilst a value-creation plan explains what management intends to change.

Between them sits a question that is rarely given its own object: Which qualities that justified the purchase must survive the hold, and how will the separate initiatives be governed as a combined investment in those qualities?

That question reaches beyond conventional brand strategy. It also reaches beyond a list of operating initiatives.

It asks:

• What was the asset we thought we were buying?
• Through which economic pathways does it create value?
• Which behavioural, commercial and operating effects are expected to preserve, repair or compound that value?
• Which initiatives are intended to produce them?
• Who owns their combined effect?
• What capital is committed?
• What evidence would increase or reduce confidence?
• What would cause management to continue, alter or stop?

These are ordinary questions in capital allocation, which become strangely difficult when the asset is psychological.

Brand is then forced into the institutional forms readily available to it: an agency brief, a campaign, a repositioning, an identity, a research programme or the annual marketing budget. Some of that work is excellent, sometimes a genuine operating programme. Much of it returns for judgement at the next budget cycle, detached from the original investment thesis.

The missing object could be called an Investment-Thesis Continuity Memo (though I’m sure people have better formulations to describe it).

It would preserve the buyer’s underwriting as a live operating hypothesis: what management believes it has bought, what must be true and whether the organisation has the capability to realise it.

At minimum, it would state what the buyer believed it was acquiring; which qualities justified the price; how those qualities create economic value; which initiatives depend upon them; who owns their combined effect; what capital is committed; what evidence supports or weakens the thesis; and when management should continue, revise or stop.

A second object should look forward. The Future-Buyer Memo would ask what the next owner must eventually believe, and what management must make observably true during the hold for that belief to survive diligence.

It would identify plausible buyer categories, the future strategic thesis, the capabilities that must exist, the evidence that must accumulate, the weaknesses that must be repaired and the roadmap connecting today's business to the future buyer's case.

This is not exit marketing but is a matter of enterprise construction.

The equity story should not be written in the final year and placed over whatever the operating model happens to have produced. It should be treated as a proposition the company has spent the hold making true.

Buy against a thesis. Operate the thesis. Build the evidence. Sell a stronger thesis.

Exhibit 3

The continuity object

Exhibit 3. The continuity object: one investment thesis carried through three decisions, at entry, during the hold and for a future buyer. This table is the accessible equivalent of the diagram above.

Entry	Hold	Future buyer
What did we believe we were buying?	What must be preserved, repaired or compounded?	What must the next owner be able to underwrite?
Qualities justifying the price	Initiatives, owners and dependencies	Capabilities and evidence
Economic pathways and brand effects	Capital and decision rights	Buyer categories and strategic fit
Risks and assumptions	Confirming and disconfirming evidence	Conditions for entering the market

Aha's wider thesis begins here. The company does not lack the asset. It lacks an operating form capable of carrying an intangible asset through investment, action and review.

Brand has a brand problem

Brand enters the organisation in the form in which it has taught the organisation to buy it.

Finance presents an investment case. Technology presents an architecture. Operations presents a system. Brand presents a brief.

It then asks to be treated as capital while arriving as a campaign, a repositioning, an identity, a research programme or an agency scope.

The work may prove excellent. The form telegraphs to the organisation that it’s buying an output rather than developing a capability.

The discipline has become highly sophisticated at describing what it makes and less successful at naming the economic effects it nurtures, directly or indirectly. It talks about awareness, consideration, purpose, positioning and creative expression. Elsewhere in the company, the resulting effects appear as pricing power, conversion, retention, acquisition efficiency, resilience, distribution permission, talent attraction and confidence in future growth.

Aha calls these Brand Effects: the behavioural, economic, operating and market consequences produced by what people believe about a company.

The organisation sees the effects, but rarely as a holistic account of the asset.

The result is circular. Brand arrives as a project and is governed as one, with evidence demanded at project cadence. Its effects cross functions and time periods, so the answer appears incomplete. By the next budget cycle, it has returned as discretionary expenditure.

This is not solely something done to brand. Brand has assisted in teaching the institution to misunderstand it.

The agency is not the problem, but the work is shaped by the form the client has available to buy.

A strategic brand commission defines the strategy, creative work or experience required. An operating programme defines how the organisation will govern ownership, benefits, capital, risk and decisions around it. Both can be rigorous, but as governing forms they diverge crucially.

The agency may contribute to the wider programme. It cannot confer authority, release uncommitted capital or own dependencies distributed across the company. The commissioning organisation has to create the programme into which the work enters.

Paper 3 will examine that boundary directly. The point here is simpler: a good answer can still be orphaned by the form in which it’s bought.

Brand is not sacred

Some marketing expenditure should be cut. Some brand strategies solve no material business problem. Some repositionings are indulgent or counterproductive. Some famous campaigns create more value for the agency than for the company. Some businesses possess little brand advantage worth defending. Others have more urgent constraints in product, operations, distribution, leadership or the balance sheet.

Brand should compete for capital against other uses. That requires a clear economic case, an accountable owner and a return threshold appropriate to the risk.

I saw the limit during a customer-experience transformation for a major flag carrier. The brief asked to identify moments capable of making the journey more distinctive and memorable. Many of the ideas passed the conventional tests of desirability, feasibility and viability. They were approved for further development.

But the programme sat inside a different operating reality. Parts of the basic service were being stripped back. Investment in fleet and systems was constrained. Service failures and an increasingly public dispute with employees shaped what passengers actually experienced.

The central constraint was not a shortage of attractive ideas. It was the reliability of the operation and the quality of the service wrapped around it.

Kano's distinction is useful here. Atarimae Hinshitsu is the functional quality customers take for granted until it fails. Miryokuteki Hinshitsu is the magical, attractive quality that surprises, differentiates and creates preference. Kano's original model distinguishes must-be quality from attractive quality instead of treating satisfaction as one linear scale.9

The second cannot compensate indefinitely for repeated failure in the first. Magical moments layered over an unreliable journey remain contingent. They cannot transform the experience, in fact the inconsistency can focus rather than soften criticism.

The ideas were strong, but in that system they became gestures rather than substantive improvements.

The experience cannot outrun the operation.

Brand should compete as the asset and set of economic effects it is, rather than merely as the expense line through which some of those effects are produced. That is the category error.

The investment committee considers trust, customer preference, pricing power, market position and reputation when deciding what the business is worth. The operating committee later encounters pricing, product, customer, distribution and marketing as separate workstreams.

The company still possesses the asset, though the system has ceased to discuss it in one piece.

Back in the room

Return to the investment committee.

It didn’t buy a campaign. Instead it bought a company whose reputation, customer relationships, position and ability to hold price shaped the expectation of future cash flows.

After completion, those qualities entered the plan through different doors. Pricing went to commercial. Loyalty went to retention. Reputation went to communications, service and risk. Differentiation went to product, proposition and positioning.

In the best businesses, management preserves the connection. The separate initiatives continue to serve one understood thesis.

Elsewhere, the operating plan inherits the levers but loses the reason they belonged together.

Nobody needs to stop believing in brand for this to happen. The system only needs to lack a standard way to carry the belief into action, capital and review.

The diligence gap is the gap between recognising brand value and knowing how to operate it sustainably.

Our take is simple. Brand is bought as an asset and managed as a cost.

Brand-related evidence is distributed across diligence, finance, product, customer, operations and marketing, but there is no standard form for preserving the investment thesis that made those effects one asset.

The pieces are legible, but the whole is not carried forward.

As a result, brand may help justify the price at entry without becoming an underwritten, governed and operable value-creation programme during the hold.

Aha builds that continuity. It makes brand legible, underwritable and operable by connecting economic pathways, Brand Effects, capital, ownership, evidence and decision rules.

That is the argument the next two papers will develop. This paper stops at the point the problem becomes visible.