Deal structuring around customer concentration

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by a searcher from Dartmouth College - Tuck School of Business at Dartmouth
in Princeton, NJ, USA

2yrs ago

Deal structuring around customer concentration

Looking at a manufacturing business with one customer representing ~50% revenues. Any creative ways to structure purchase to mitigate loss of top customer.

So far, I've heard:

1. Seller note with interest and principal subject to financial metrics

2. Portion of purchase price held in escrow subject to financial metrics

Appreciate the help

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reply by a professional 2yrs ago
from Yale University in Toronto, ON, Canada

Sometimes, a customer responsible for 50% of business hangs on owing to personal relationship. They might not leave but could strong-arm you uninterestingly.

reply by an investor 2yrs ago
from Columbia University in Fairfax, VA, USA

If you're levering the company 70%+, you're putting yourself in a really bad spot with that level of customer concentration. Without a significant Seller's Note in place (tied to revenue), you're taking on too much binary risk. If the Seller isn't open to that, you should walk away from this one.