Our largest client represents forty percent of our revenue, and the buyer wants to slash our EBITDA multiple by two turns because of it. How do we structure the deal to protect our baseline valuation while easing their concentration fears?

Question

Tyler Smith · Accepted Answer

Do not accept a permanent reduction in your valuation multiple. A multiple cut penalizes you forever on cash flow that is highly likely to continue. Instead, use a structured, contingent-pricing mechanism that addresses the risk directly. Structure a portion of the enterprise value as a performance-tied promissory note or a specific customer retention escrow.

Under IVS 105, you can value the cash flows from this major account independently using the Income Approach. Use this data to propose a carve-out: if the client renews their contract post-close or maintains seventy percent of their historical volume for twelve months, the buyer pays the full multiple through the release of the escrowed funds.

To make this credible, show the buyer that the relationship is institutionalized. Map out the client accounts on your EOS Accountability Chart. Prove that your account managers, not the departing founder, have the GWC to run the relationship. Present the client's historical retention data and their integrated software pipelines. If you have automated data exchanges with this client, emphasize the high switching costs. By linking the value to actual retention rather than accepting an upfront haircut, you shift the risk from a subjective discount to a performance-based milestone. This preserves your enterprise value while giving the buyer the downside protection they require.