Our largest customer accounts for thirty percent of our total revenue, and the buyer wants to carve them out of the baseline purchase price and pay for them entirely through an earnout. How do we counter this structure so we do not shoulder all the post-close operational risk?

Question

Tyler Smith · Accepted Answer

Buyers demand carve-outs when they believe the account belongs to the seller rather than the business. Shifting thirty percent of your enterprise value entirely into an earnout forces you to absorb all customer attrition risk while relinquishing day-to-day operational control to an acquirer who could mismanage delivery, raise prices recklessly, or alter account terms.

Reject the complete carve-out. Counter with a blended valuation mechanism that distributes the risk equitably between both parties. Insist that the baseline enterprise value includes at least fifty to sixty percent of that customer's historical gross margin at the agreed multiple, paid in cash at close. Allocate the remaining purchase price to a structured performance note or contingent earnout with very specific guardrails.

Define the performance trigger based on gross revenue or gross margin generated by that specific customer rather than net profit, ensuring buyer overhead allocations do not destroy your payout. Require an operational covenant stating that post-close, customer delivery must adhere to the exact processes defined in your core operating model, and require that account ownership remains assigned to dedicated Account Managers on your Accountability Chart rather than being immediately transitioned into the buyer's broader corporate sales pool.

Include a commercial catch-up clause: if the customer leaves because the buyer breaches quality standards or fundamentally changes pricing without customer agreement, the remaining contingent balance accelerates and becomes immediately due to you. This keeps the buyer accountable for maintaining service quality rather than letting them run the account into the ground on your dime.