Due Diligence in the DACH Region: What Really Matters

Due diligence is often understood as a purely numbers-driven process: checking balance sheets, verifying revenue, uncovering debts. But after more than 20 years of experience in the investment business in the DACH region, we know: the numbers only tell half the story. What really determines the success or failure of an investment often lies beyond the spreadsheets.

The Three Levels of Due Diligence

In our practice, we distinguish three levels that are equally important and build upon each other:

Level 1: The Hard Facts

Every due diligence naturally starts with the numbers. Revenue development, profitability, cash flow, balance sheet structure, tax situation — this is the foundation without which no investment decision is possible. In the DACH region, specific topics arise: different accounting standards (UGB, HGB, OR), country-specific tax regulations, and regulatory requirements depending on the industry.

In Austria, particular attention must be paid to the legal entity form. The GmbH reform of 2024 has opened new possibilities but also created complexities that must be understood in any investment. In Germany, the topic of co-determination plays a larger role; in Switzerland, cantonal differences in taxation and regulation.

Level 2: The Business Model

The second level goes deeper: How robust is the business model? Here we ask questions that go beyond current performance:

How defensible is the competitive advantage? Is it a genuine unique selling proposition (technology, network effects, regulatory advantages) or merely a temporary lead that can be caught up with capital?

How dependent is the company on individual customers? In the DACH Mittelstand, we frequently see concentration risks — a single major customer accounts for 40% or more of revenue. This is not per se an exclusion criterion but must be actively managed.

How does the model scale? Does revenue grow faster than costs? Or does growth primarily lead to linear expenses? This distinction is essential for the return expectations of an investment.

Level 3: The People

The third level is simultaneously the most important and the most difficult to evaluate: the people behind the company. In our experience, investments rarely fail due to bad markets or faulty products. They fail because of founders who can't let go, management teams that don't collaborate, or a corporate culture that blocks innovation.

That's why we invest considerable time in getting to know people personally. We don't just conduct formal meetings but seek informal exchanges. We speak with employees at various levels, visit the location, observe team dynamics. This cannot be captured in a spreadsheet but is often the decisive factor.

DACH Specifics: What International Investors Overlook

The DACH region has peculiarities that international investors regularly underestimate:

Relationship-driven business. In the German-speaking world, trust counts more than in many other markets. Business relationships are built over years and are not easily transferable. A due diligence must understand and evaluate these relationship structures.

Conservative approach to numbers. DACH entrepreneurs tend to present their numbers rather conservatively — the opposite of what one is accustomed to in the Anglo-American sphere. What appears at first glance as mediocre performance can, upon closer examination, be a very profitable business.

Regulatory depth. Whether the Trade Regulation Act in Austria, the Crafts Code in Germany, or industry regulations in Switzerland — the DACH region is densely regulated. This creates entry barriers that can be an advantage for existing companies but also complexity for investors.

Our Due Diligence Approach

At MICH, we have developed an approach over the years that systematically connects these three levels. We view a company not as an isolated economic unit but as a living system of numbers, strategy, and people.

Our advantage as an operationally-minded investor: we evaluate not only whether an investment is attractive on paper but also whether we can create real value as a partner. Because the best due diligence is worthless if no productive collaboration follows the investment.

Conclusion

Due diligence in the DACH region is more than number-crunching. It is a holistic process that combines financial analysis, strategic assessment, and human judgment. Those who take all three levels seriously not only reduce risks but create the foundation for successful, long-term partnerships.