Verification & protection — file review, earnouts, transition.

The verification layer of customer DD is where the retention and defensibility findings get tested against actual files, multiple data sources, and post-close protection mechanics. Three workstreams structure the work: file-level policy review, multi-source triangulation, and earnout protection design.

Sample, examine, reconcile.

File review samples the book at the policy level. The buyer's diligence team — or a third-party file-review specialist — examines 50–150 individual policy files against carrier records, AMS data, and the seller's representations. Three categories of finding.

• Data accuracy. AMS data matches carrier policy records — premium amount, effective date, coverage limits, named insureds. Discrepancies surface AMS hygiene issues that affect post-close operational reliability.
• Premium reconciliation. Premium billed, premium collected, premium remitted to carrier, commission flowing to the agency. The reconciliation should close on every sampled policy. Open items signal accounting friction that may surface as commission disputes post-close.
• Documentation completeness. Application files, signed coverage documents, claim history if any, correspondence records. Files that are organized and complete reflect operational discipline; files that are scattered and incomplete reflect operational fragility the buyer inherits.

Sampling strategy matters. Top-20 accounts (concentration risk) should be examined individually rather than sampled. Mid-tier accounts can be sampled at 5–10% rate. Bottom-tier accounts can be sampled at 2–5% rate. The total sample should cover the breadth of LOB, geography, producer assignment, and tenure to surface patterns the smaller samples miss.

Three data sources, three confirmations.

Triangulation extends file review by comparing three independent data sources: the agency's AMS (what the seller reports), the carrier's records (what the carrier confirms), and the client's confirmation (what the client validates).

Sellers can misrepresent; carriers occasionally err; clients sometimes mis-remember. Triangulation surfaces what any single source might miss.

Direct client contact during DD is sensitive — the seller's relationship with the client must be protected, and clients shouldn't learn about a deal in process. Most agency deals use indirect verification: confirming the relationship through producers, through publicly-available indicators, and through references from clients who know about the deal because they're partners or board members.

Converting findings into structure.

Customer-DD findings often justify earnout structures that protect the buyer if post-close customer outcomes diverge from the seller's representations. Four patterns dominate.

• Retention-keyed earnouts. A portion of purchase price contingent on book-level retention staying within a defined band — typically 90%+ retention preserves full payment; below 85% triggers reductions. Aligns seller and buyer interests through the transition window.
• Top-account-keyed earnouts. Earnout payment conditioned on retention of named top accounts — typically the top 12 or top 20 by revenue. Useful when concentration risk is the primary book-quality concern; surgical and specific.
• EBITDA-keyed earnouts. Earnout payment conditioned on post-close EBITDA outcomes against a defined baseline. Broader than retention-keyed earnouts; captures whether the book actually produces the modeled economics, not just whether clients stayed.
• Hybrid earnouts. Combinations of the above — partial weight on retention, partial weight on EBITDA, partial weight on specific named-account outcomes. Most common in larger deals where multiple customer-DD findings need structural protection.

Earnout design has trade-offs. Larger earnouts shift more risk to the seller but create more friction post-close. Shorter earnouts (12 months) are cleaner; longer earnouts (24–36 months) better capture trend information. The buyer's leverage in earnout structuring is highest when customer-DD findings are specific and quantified.

Together, file review, triangulation, and earnout protection complete the verification layer of customer DD. They convert measurement and defensibility findings from earlier layers into deal-structure leverage. The Pillar — Customer Due Diligence for Buyers — anchors the framework. The adjacent financial-DD layer — Financial Due Diligence — covers the EBITDA-side discipline that earnout structures must reconcile against.