A prospective buyer is using our thirty percent customer concentration to slash our base EBITDA multiple by two turns. How do we structure a performance-based pricing tier or contingent payments to preserve our target valuation without letting them hold our cash hostage in a traditional escrow?

Question

Tyler Smith · Accepted Answer

Customer concentration is one of the most common reasons deals fall apart or multiples get slashed. If one client represents thirty percent of your revenue, a buyer sees a single point of failure that could destroy their investment on day one. A simple escrow holdback is a blunt instrument that puts your hard-earned cash at risk under their management. Instead of a massive escrow, propose a structured, performance-based pricing tier or a contingent note. This structure bridges the valuation gap by keeping the purchase price high while protecting the buyer from sudden loss. For example, you can structure a portion of the purchase price as a seller note that amortizes normally but contains a specific covenant. If the major customer leaves within the first eighteen months through no fault of the buyer, the outstanding principal of the note is reduced by an agreed-upon formula. Additionally, show the buyer how you manage this account. Use your Accountability Chart to prove that the relationship is held by your operations team, not by you personally. Show them the structured touchpoints, quarterly reviews, and the long-term Rock goals that are integrated into your V/TO. When you combine a performance-based note structure with proof of operational institutionalization, you allow the buyer to manage their downside risk without forcing you to forfeit millions of dollars in upfront equity value.