Any rules of thumb; widely used or from experience for ceilings on customer concentrations for top 1, 5 and 10 customers? I'm reviewing deal with 25%, 40% and 75% respectively generally with 20 year tenure with company. I know it depends on contracts, exclusivity, moats, nature of service or product, competitive alternatives....but just rule of thumb. This one strikes me as 'high' but maybe borderline for the right price.
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1) How long as that business been a customer of the company? The longer the more likely they are to stay a customer.
2) How many items does the business produce for that customer? The more items produced the stickier the customer is likely to be.
3) What does the competition look like in the market for other potential suppliers to that customer? Is there a lot of competition? What does pricing look like from that competition?
4) How easy is it to move that customers business to another operator and is there a cost to do so? And do you need special licensing or knowledge to manufacture that product or molds, making it harder to move the product.
5) How important is this product to that customers overall operation? Is it product likely to stick around and continue to be needed going forward, or is it something that might eventually go away.
6) Lastly, who at the company manages that customer's relationship and how contingent is it upon the seller remaining for that customer to stay. This can be the hardest issue to figure out, but sometimes there are lifetime relationships between customers and sellers that can pose a significant risk.
The more of these items you can get comfortable with, the less risk there will be, and the easier it will be to convince lenders and investors the risk is not a concern. I hope this helps. Good luck.