The buyer is refusing to pay our target multiple because our top three clients generate half of our gross margin. Instead of a standard holdback, how do we use a bifurcated deal structure with a tracking stock or synthetic equity class to isolate this concentration risk while securing a premium multiple on our core business?

Question

Tyler Smith · Accepted Answer

When three clients represent half of your margin, buyers will try to slash your overall multiple. Instead of accepting a massive holdback that puts your hard earned cash at risk, you can propose a bifurcated deal structure. This structure isolates the concentration risk while protecting the premium valuation of your core business.

To do this, divide your enterprise value into two distinct tranches. The first tranche represents your core, diversified business, which is valued and paid out at a premium multiple at closing.

The second tranche represents the valuation attributed to your top three clients. For this portion, you can structure a synthetic equity class or a tracking stock that pays out based on the actual performance and retention of those specific clients over a set period, such as twenty four months.

This keeps the buyer from applying a blanket discount to your entire business.

To make this structure work, you must maintain operational control over how those key accounts are managed post close. Use your EOS Accountability Chart to show the buyer exactly who owns those relationships.

By proving the accounts are institutionalized and tying only their specific value to a targeted performance structure, you protect your baseline valuation and secure a clean path to your full payout.