Lender recognized mitigations for supplier concentration?

by a searcher from Harvard University - Harvard Business School

1 year ago

I'm interested in niche mfg'ing opportunity.  Solid margins, no material customer concentrations, nice growth prospects...

The challenge with this one is supplier concentration.  Due to the specialized nature of the company's inputs, the supply base is concentrated to 1 international distributor sourcing from a small number of vendors (<5).  

Has anyone had success helping lenders understand and approve mitigations to supplier concentration?  Things like long-term supply agreements (LTSAs), regional exclusivity contracts, or other mitigation strategies to demonstrate post-transaction supply continuity?

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5 comments

searcher from University of Illinois at Urbana-Champaign

I'd like to bump this as I'm looking at a similar opportunity (supplier concentration of ~90% via operating as a dealer/installer/service provider with defined territories for high margin, moated product) - a good fit for my investment thesis with significant upside, but hair on it in the guise of what happens if the supplier goes out of business / sells / etc. Doesn't matter and it has good upside after a few years if model is correct. But... before that, existential risks... Vendor financing does not seems to be feasible in this situation. SBA unlikely, unless I'm wrong. Purchase price 6-7M range, a little bigger than SBA anyway.

Seller has the real issue here, but I also see an opportunity if I could find the right structure.

Does anyone have additional insights outside of 100% seller financing (the dream)? Open to ideas. --@----.com

2 weeks ago | like reply | 0 likes

lender from Northwestern University - Kellogg School of Management

We have worked on financing deals where we were able to get our head around this. Let me know if you would like to have a conversation: --@----.com

1 year ago | like reply | 0 likes

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