A strategic buyer is docking our valuation because our top three clients represent forty percent of our revenue, even though these relationships are over five years old. How do we structure the purchase agreement or indemnity caps to offset this concentration risk without taking a permanent haircut on our enterprise value?

Question

Tyler Smith · Accepted Answer

A blanket discount for customer concentration is a standard buyer tactic, but you do not have to accept it. If those relationships are stable and institutionalized, you can use deal structure to protect your valuation. Instead of taking a permanent price reduction, propose a structural bridge. Agree to carve out a portion of the purchase price into a specialized escrow account or a targeted earnout. If the concentrated accounts meet specific retention or revenue targets for twelve to twenty-four months post-closing, the funds are released to you in full. To support this structure, you must show that these clients are tied to the business, not to you personally. Use your Accountability Chart to show that key account managers hold those relationships. Present documented standard operating procedures and integrated AI systems that make it difficult for these clients to switch providers. You should also negotiate the indemnity provisions. Insist that any client loss during the post-close transition period only impacts the escrowed portion of the deal, rather than triggering a broader indemnity claim that claws back your cash at close. By absorbing some of the transition risk through a structured payout, you protect your core enterprise multiple.