Adjusting multiples when a business has buyer concentration

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by a searcher from London Business School
in London, UK

1yr ago

Adjusting multiples when a business has buyer concentration

Hi folks, looking at business (enterprise software, <1$m EBITDA) with a large multinational client that takes up just under 50% of revenues (albeit across multiple geographies / BUs) . Any examples of adjusting multiples in this case to cope with client concentration?

1 Like

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reply by a searcher 1yr ago
from INSEAD in France

Though a definite red flag, as you become the employee of the client instead of the service provider at ~50% revenue.

The adjusted multiple can be a anything you want it to be and depends on what you are comfortable with paying, 10, 20,30,40,50% discount whatever it is.

Best way I would assess the risk of having such a big client is

1. Identify the relationship between owner and client, is it his/her best bud? ; Client / Provider relationship ? ; Anything in between? ;

2. Is it contractual? How long is the contract, if the contract is still for the next 5 years with strong protection in case of breaking the contract, then you should be fine and no discount needed but then again you would need to have a strong customer acquisition strategy to bring that bad boy % down

reply by a searcher 1yr ago
from University of Chicago in Philadelphia, PA, USA

Super useful thread - thank you. Didn't see this when I posted my other thread. ^redacted‌, thank you for flagging your comment history.