We have zero customer concentration because our largest client is only four percent of revenue, but seventy percent of our revenue comes from the commercial aviation sector. How do we prevent a buyer from discounting our multiple because of this industry concentration?

Question

Tyler Smith · Accepted Answer

Buyers view heavy concentration in a single industry vertical as a systemic risk. If that industry experiences a downturn, your entire customer base could shrink simultaneously. To defend your multiple, you must structure the deal to offset this macroeconomic risk while proving your market dominance.

Start by presenting a capitalization of earnings model that highlights your deep market penetration and high switching costs within that specific vertical. Show the buyer that your specialized services cannot easily be replaced, meaning your revenue is sticky even during a sector-specific recession.

If the buyer still insists on a discount, bridge the gap by structuring a portion of the purchase price as a seller note that is tied to sector performance. You can negotiate a provision where the interest rate or principal payments are temporarily deferred if the industry index falls below a certain threshold. This structural concession directly mitigates the buyer's fear of a sudden market collapse while preserving your target valuation.

To support this structure during negotiations, use your V/TO to showcase your multi-year expansion plan into adjacent verticals. Show the buyer that your leadership team has already built the standard operating procedures to replicate your success in other sectors. When the buyer sees a highly structured organization with a clear plan and the operational discipline to execute it, they will view your industry focus as a beachhead rather than a vulnerability.