We are trying to lift our multiple before entering the market, but we still have a heavy concentration of revenue in three legacy accounts. How do we structure a transition plan or performance-based deal component to neutralize this risk and secure a premium valuation?

Question

Tyler Smith · Accepted Answer

Customer concentration is a significant risk that buyers will always use to discount your valuation multiple. To secure a premium price despite this risk, you must structure the deal to share the risk with the buyer while proving the stability of those key accounts.

First, demonstrate the institutional nature of these legacy relationships. Show that these clients interact with multiple team members across your organization, rather than just the founder. Use your Accountability Chart to prove that key account management is handled by capable leaders who will remain with the company post-close.

Second, offer to structure a portion of the purchase price as an earnout or a contingent payment tied to the retention of these specific accounts. This aligns your incentives with the buyer's and gives them confidence that you will assist in a smooth transition.

Third, secure long-term contracts or service agreements with these key clients before going to market. Even a one-year or two-year extension can significantly reduce the buyer's perceived risk, allowing you to defend your multiple. By combining a structured transition plan with a performance-based deal structure, you neutralize the concentration risk and protect your enterprise value.