Customer Concentration Structuring Help

April 22, 2024

by a searcher from Harvard University - Harvard Business School in Alpharetta, GA, USA

I'm looking at a large deal (a few million in EBITDA) that has about half of its revenue from one customer. Can anyone suggest some structuring solutions to this?

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Reply by a searcher
from University of Oxford in Wellington, New Zealand

Agree with other comments. In addition you can get creative with vendor finance. The way I thought about it is that you want a I buy runway and time in case the big customer churns. You can achieve this through having a transforming vendor note. In this scenario if the large customer churns the terms of the note change to eg a bullet repayment or even principal reduction to buy time to course correct. The vendor is still made whole but you get the chance to survive!

Reply by a professional
from University of Pennsylvania in Cambridge, MA, USA

For deal structuring would consider a combination of 1) earnout or deferred consideration 2) seller credit and 3) equity roll to align incentives and protect against losing a customer - but ultimately you have to get comfortable with this risk and structuring can only get you so far vs. paying the right price given the customer concentration risk

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