M&A Advisor Tip – When You Can’t Fix Customer Concentration Issues

As a general rule, no one customer should account for more than 20-25% of your company revenue. While having large customers can be good for your bottom line, it introduces risk to the next owner.

Our best advice: Anticipate the problem. Act now to grow your business with other customers and/or secure long-term transferrable contracts with your top accounts.

The backup plan: If you’re ready to move forward with a sale, and customer concentration issues are what they are, help buyers see:

  • Where you have multiple connections inside the customer organization, with more than one decision maker, influencer, and day-to-day contact
  • That you work with more than one customer location or division, with separate purchasing agents
  • How a disruption in the relationship would cause a disruption in the customer’s business
  • How the company relationship has lasted for many years

If buyers perceive a risk in customer concentration, they will probably allocate a certain amount of the purchase price to seller earnouts or other contingencies. Protect your interests by demonstrating where concentration issues are not as hazardous as they might seem.

What our clients are saying...

“I wanted to thank both of you on behalf of Equity Management Partners for the helpful and very professional manner in which you managed the sale of New England Techni-coil, Inc. As you know well, these types of transactions are often long and complicated and I doubt it could have been successfully completed without your close ongoing involvement.”

- Thomas, Partner

New England Techni-Coil