All - I have a potential opportunity, an electrical contracting business that consists of mostly project based revenue. The business has 70-75% of its 2025 revenue tied to a single project (one customer) that is going to complete in 2025.
It should be eligible for SBA financing (as long as a lender is okay with construction) so an earn-out wouldn't work. I'd want a way to incentivize the seller to assist in ensuring the project revenue is replaced with new project(s). The pipeline shared with me shows they have many projects, from multiple customers, with greater than 50% likelihood of being awarded this year which will reduce the customer concentration in back half of 2025 and 2026.
How would you structure a deal like this that would close after the large contract is complete or mostly completed?
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by a professional
from Villanova University
in Miami, FL, USA
in Miami, FL, USA
1yr ago
Considering a business with high customer concentration
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by a professional
1yr ago
from Villanova University in Miami, FL, USA
from Villanova University in Miami, FL, USA
Well said ^redacted your questions / thoughts are spot on. I wasn’t asking for ways to force a deal to happen but did want to gain knowledge from others that might have structured deals in ways I wasn’t familiar with to reduce risk and generate add’l questions I should be asking myself and the seller.
This opportunity is tied to new construction which is big concern. The seller is working on increasing recurring revenue and leaving it to the new buyer to continue to focus on that.
This opportunity is tied to new construction which is big concern. The seller is working on increasing recurring revenue and leaving it to the new buyer to continue to focus on that.
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by an intermediary
1yr ago
from The University of Chicago in Chicago, IL, USA
from The University of Chicago in Chicago, IL, USA
This not a concentration issue. Project oriented businesses with "large" projects often have "large" relationships with customers or referral sources or with city/state political network. This may have union. Union labor typically is on-demand; hence, overhead is low. Minority often has advantage.
Leverage is not recommended. High equity or contingent price works.
I echo ^redacted points especially w.r.t high WC, WC delays, 10% retention. Further, have a good DD professional if there is % of completion method.
In general, be careful unless this is a small business.
Leverage is not recommended. High equity or contingent price works.
I echo ^redacted points especially w.r.t high WC, WC delays, 10% retention. Further, have a good DD professional if there is % of completion method.
In general, be careful unless this is a small business.
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