Our primary customer represents almost forty-five percent of our total annual revenue, and the buy-side investment firm is demanding a thirty percent discount on our EBITDA multiple. How do we structure a deal mechanism to mitigate this customer concentration risk without taking a massive hit to our upfront valuation?

Question

Tyler Smith · Accepted Answer

Customer concentration is a massive hurdle, but taking a flat thirty percent haircut on your multiple at the starting line is a lazy concession. You must restructure the conversation around risk mitigation rather than straight price reduction. The goal is to prove that this key account is structurally locked into your systems and to back that up with a smart deal structure.

First, prove to the buyer that this customer is fully integrated into your automated operations. Show them how your workflows and proprietary portals make it operationally painful and expensive for this customer to switch providers. In EOS terms, show how this account is managed through your Accountability Chart, proving that the relationship is held by your system and your team, not by you personally.

Second, propose a bifurcated deal structure. Instead of accepting a lower multiple across your entire EBITDA, isolate the cash flows of that single customer. Offer to structure the transaction with a full enterprise multiple on your diversified revenue, while putting a portion of the valuation tied to the concentrated account into an earnout or a structured seller note.

Under this setup, the portion of the purchase price representing that client's EBITDA is paid out over eighteen to twenty-four months as long as the account meets specific revenue thresholds. This protects the buyer's downside risk while ensuring you receive full value for the business if the customer remains. It aligns incentives and keeps the buyer from using concentration as a tool to chip your valuation.