Our top three customers account for 48 percent of total revenue, but they also generate 65 percent of our EBITDA. Buyers are using this concentration to devalue our entire earnings base. How do we structure the deal consideration between cash and risk-sharing instruments to protect the full valuation of our core earnings?

Question

Tyler Smith · Accepted Answer

When your highest-margin accounts are concentrated in three relationships, buyers see a catastrophic downside scenario where losing one client renders the debt service unmanageable. They respond by applying a blanket multiple haircut across your entire EBITDA. Do not accept a lower multiple on your whole business to compensate for a risk isolated to three accounts.

Instead, separate your enterprise value into a secured baseline and a contingent instrument tied strictly to the performance of those three accounts.

- Require the buyer to pay their full market multiple in cash at close for the diversified fifty-two percent of your revenue, which carries standard commercial risk.
- Structure the margin generated by the top three accounts into a two-year or three-year contingent value right or performance-linked seller note.
- Tie the contingent payout solely to the ongoing gross margin or volume retention of those specific three clients, not overall company EBITDA. If those clients maintain their purchasing levels, the buyer must pay the remaining purchase price dollar for dollar.
- Insert a bad boy clause ensuring that if the buyer loses an account due to post-closing operational failure, price hikes, or vendor conflict of interest, the contingent payment accelerates and becomes immediately due.

This framework removes the buyer excuse that concentration justifies a 4x multiple on the whole business. You accept risk where you have operational confidence while capturing top-dollar valuation on the underlying enterprise.