Our largest customer represents twenty-eight percent of our revenue, but they are also our fastest-growing account. How do we structure a valuation collar or deal terms to prevent the buyer from discounting our multiple because of this concentration?

Question

Tyler Smith · Accepted Answer

Customer concentration is a major risk that buyers will always try to use to chip away at your valuation. Instead of accepting a permanent discount on your multiple, you can structure a valuation collar that links a portion of the purchase price to the actual post-close performance of that specific account.

A valuation collar divides your purchase price into a guaranteed base payment and a conditional adjustment pool. If the major customer maintains their historic spending level for twelve months after the close, you receive the full valuation multiple. If their spending increases, you can structure a premium payout. If their spending drops below a specific floor, the purchase price is adjusted downward, but only up to a pre-negotiated limit.

To make this structure work, you must keep operational control over how that customer is served. Ensure the purchase agreement specifies that the buyer must maintain your current service level agreement and pricing structure for that client. Your Integrator and leadership team must remain in their Accountability Chart roles to manage the relationship during the transition period.

This structure protects both parties. The buyer gets protection against sudden post-close churn, and you protect your upside by backing your operational execution. By using a collar instead of a flat discount, you keep the deal moving forward while proving your confidence in the customer relationship.