The buyer is demanding that we exclude our largest customer, who accounts for twenty percent of our sales, from the initial EBITDA calculation and pay us for that portion of the business only if the customer stays for two years. How do we negotiate a fairer structural solution to this customer concentration problem?

Question

Tyler Smith · Accepted Answer

Excluding a major customer from your base EBITDA calculation is a harsh buyer tactic that severely undervalues your business at closing. While the buyer is trying to eliminate their downside risk, you should not bear the entire burden of this concentration. To negotiate a fairer structure, propose a sliding-scale earnout or a targeted indemnity escrow rather than a flat exclusion. First, establish a baseline. If the key client has been with you for several years and is deeply integrated into your operations, argue that their historical loyalty deserves upfront value. Agree to put a portion of the purchase price related to this client into a specific escrow account. If the client remains active and meets defined revenue thresholds at the twelve-month and twenty-four-month marks, the escrowed funds are released to you. Second, ensure you retain operational control during the earnout period. The purchase agreement must state that the buyer cannot change the pricing, service quality, or key personnel dedicated to this client, as poor post-acquisition management by the buyer could easily drive the client away and cost you your payout. This structure protects the buyer from immediate loss while ensuring you get paid for the real value of the relationship.