One anchor customer represents thirty-five percent of our total revenue, and several private equity firms have passed on bidding entirely. How do we structure a transaction around this heavy concentration without accepting a catastrophic discount?

Question

Tyler Smith · Accepted Answer

Heavy customer concentration creates binary risk for a financial sponsor. If that single account walks away after closing, the remaining cash flow might fail to service the acquisition debt, triggering a default. Institutional buyers pass because their lenders will not underwrite the leverage. To get a deal done, you must structurally transfer risk back to yourself or build institutional moats around that relationship.

First, bifurcate the transaction structure. Propose a stable baseline valuation for the diversified sixty-five percent of the business paid in cash at close, while structuring the concentrated thirty-five percent through a specialized contingent instrument. This can take the form of an earnout, a milestone-based seller note, or a segregated class of equity tied explicitly to the gross margin generated by that anchor account over a three-year period. If the account stays, you receive full value; if it leaves, the buyer is protected.

Second, demonstrate that the client relationship is fully institutionalized. Buyers fear that the anchor client is loyal only to the founder. You must prove the account is managed across your Accountability Chart, with multi-threaded relationships involving your account executives, project managers, and technical leads. Document your standard operating procedures, show that service delivery runs without founder involvement, and verify that the client has executed a long-term master service agreement with high switching costs.

Finally, explore strategic buyers rather than private equity sponsors. A competitor in your space may already serve that anchor client or possess complementary services, reducing their perceived risk and enabling them to absorb the concentration without demanding severe structural haircuts.