We want to avoid a broad earnout, but our thirty percent customer concentration is spooking buyers. How can we structure a targeted concentration indemnity or milestone earnout tied only to that single account?

Question

Tyler Smith · Accepted Answer

When customer concentration threatens to derail a transaction, buyers default to demanding a sweeping earnout tied to company-wide EBITDA. This structure penalizes the entire business if macroeconomic conditions shift, even if the core business thrives. A targeted commercial indemnity or account-specific earnout is the correct tool to isolate the risk.

Instead of accepting a discount on your overall valuation multiple, separate the concentrated client from the rest of the enterprise. Agree to normal cash at close for the base business, and place a specific percentage of consideration into a dedicated escrow or contingent note tied exclusively to the concentrated account's volume.

The structure should specify that if the key client maintains at least eighty to ninety percent of its historical billing volume over the twelve to twenty-four months post-close, the contingent funds release in full to the seller. If volume falls below that floor due to reasons under the seller's pre-closing control, the buyer receives a pre-calculated offset.

Crucially, you must build protective covenants into the purchase agreement. The buyer cannot alter pricing, terminate key account staff, or downgrade service delivery quality, because doing so could intentionally trigger client attrition.

Use your Level 10 Meeting™ process to track account milestones and service level agreements leading up to the transaction. Showing historical SLA adherence and customer satisfaction scores gives both sides confidence to isolate the concentration risk without contaminating the rest of the deal structure.