80% customer concentration
November 12, 2023
by a searcher from Colorado State University in Fairfield, CT, USA
I'm looking at a commercial cleaning business that does about 1.5MM EBITDA with 80% coming from multiple contracts all under the umbrella of a single university hospital. Most advice tells me to factor this into the asking price, instead of trying to tie seller compensation to it because the seller won't have any control over my performance in the business after they leave. Any advice on how to factor this into the multiple, or another way to mitigate this risk?
in Tucson, AZ, USA
The $300k (representing the 20% that isn't from one client), could be offered at the appropriate EBITDA multiple for your industry.
The 1.2M that represents the University hospital should be entirely purchased with the earn out. Losing that contract would mean the complete collapse of your entire business. How the current contract is written and how it renews will also be critical. Your lawyer needs to be specialized in lower-middle market acquisitions and you need to listen to their advice. Walk away from the deal if the risk can't be mitigated properly.
from University of Virginia in Bethesda, MD, USA