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...

“New Image Coatings, owners of Seal-Once, retained Business Transition Strategies in April of 2015 to locate a strategic buyer for the company. This was successfully completed during April of 2016 when we were acquired by UC Coatings of Buffalo, New York. Working at our side throughout this process were John Howe director, and Ken Schaefer, deputy director, of Business Transition Strategies. From the start of the project, where the information memorandum was developed, to helping us create the management presentation to acquirers, through negotiating the letter of intent and then the definitive agreement, they were there with me and our professional team every step of the way. It took nearly one year to the day to complete the project, but they never lost focus on my best interests and helped me keep my eye on business. This sale was very complex. It included transfer of trade secrets from the product developer, …as well as the transfer of a manufacturing and licensing agreement we had with the core compound producer… John and Ken marketed the company to a range of strategic acquirers, including a number of private equity groups and their platform companies, which ultimately resulted in an agreement with United Coatings… BTS’s level of expertise in the process and close attention to detail enabled us to successfully navigate the deal. I would recommend John Howe and Ken Schaefer to any company owner considering selling.”

- Hank Croteau

New Image Coatings