Our top client represents twenty-four percent of revenue and wants to sign a five-year exclusive contract before we sell. Will this resolve buyer concentration fears or create new traps?

Question

Tyler Smith · Accepted Answer

Locking in a quarter of your revenue for five years sounds like the ultimate risk mitigation, but it can easily backfire during deal negotiations if structured carelessly. Sophisticated buyers will thoroughly examine the fine print of that contract, and certain clauses can cripple your valuation.

First, check the change-of-control provision. If that five-year agreement requires client consent upon an ownership transfer, you have handed your largest customer absolute veto power over your company sale. That client can extract commercial concessions, lower pricing, or refuse to consent unless they receive financial incentives, completely stalling your transaction.

Second, look at termination and exclusivity restrictions. If the contract grants them exclusivity while giving them an easy out for convenience or performance benchmarks, the buyer bears all the operational risk while being legally blocked from pursuing adjacent market opportunities.

To make this contract a net positive for valuation, draft it with a clean exit in mind. Ensure the change-of-control clause explicitly permits assignments to affiliates or acquirers without consent. Include enforceable minimum volume commitments or take-or-pay structures rather than vague master service agreement language. If the contract eliminates uncertainty without binding an acquirer hand and foot, it defends your enterprise value. If it contains poison pills or consent traps, it will drive buyers to demand massive escrow holdbacks or aggressive earnouts.