Customer Concentration under Contract

by a searcher from Auburn University - Raymond J. Harbert College of Business

1 month ago

Potential acquisition has 60% customer concentration under contract ($1.6MM EBITDA - recurring revenue model in the commercial services space). The contract has 8 years remaining. I am familiar with some of the methods to decrease customer concentration risk, and the seller won't entertain above a 25% note. 

Is this acquisition bankable? 

There is no guaranteed, immediate plan to significantly decrease customer concentration through new revenue. 

Is this just a hard pass?

1 like
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17 comments

intermediary from The University of Chicago - Booth School of Business

I have sold many businesses with high concentration, and they have been very successful. The key is the reason for concentration. Ability to understand this is a challenge. Contract by itself should not be a comfort. I would also say that 10-20% concentration is often riskier that 60%. Recently. two banks were willing to finance 85% concentration at 5x with 30% Note. Happy to talk.

1 month ago | like reply | 0 likes

searcher from Indiana University, Bloomington/Indianapolis - Kelley School of Business

Would likely vary depending on industry and how easily replaceable the service is. I don’t see why it wouldn’t be bankable with an industry-specific bank who can rationalize the risk appropriately.

1 month ago | like reply | 0 likes

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