High Customer Concentration Valuation

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by a searcher from Harvard University
in Philadelphia, PA, USA

1yr ago

High Customer Concentration Valuation

Hi I have a potential target with almost 70% of its revenue concentrated in two customers. These customers have been with the target company forredactedyears. How alarmed should I be about this concentration? Do you suggest it warrants reducing SDE multiples? if yes, to what extent? Thanks

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

Thank you Hallam, great advice! the seller's note usually is just another form of financing, can we attach conditions to payment of the seller's note contingent on the customer staying for a predefined period of time? thanks Vidhu

reply by a professional 1yr ago
from University of Michigan in Detroit, MI, USA

Yes, you can make all or a portion of the note forgivable. But just be aware that this might not save you if the worst happens. Having a future amount that you owe forgiven is not the same as having a pool of liquidity at hand if one of these customers leaves. Plan accordingly. Happy to discuss further.