Software Deal - Customer Concentration

Member resources:

Frequent asked questions:

What is Searchfunder.com?

Searchfunder.com is an online community of searchers, investors, lenders, brokers and other professionals. Over 80% of those involved in searchfunds maintain a Searchfunder account to help them network, hire, and mentor others.

What are the benefits of membership?

In addition to accessing the most active online network of business buyers, Searchfunder licenses research that is simply not cost effective for individuals. Access over 15,000 industry reports and 50,000 transaction financials. You also get monthly credits for contact information for your company sourcing campaign with the option to purchase more at drastically discounted rates. Searchfunder has pre-purchased access from these data providers in order to empower individual buyers and to help searchers level the playing field versus private equity.

Do you have deals?

While we are primarily a buy-side network, we do have hundreds of brokers that regularly post deals to the community.

Can I find an internship on Searchfunder?

Absolutely! We have the industry's largest intern job board. If you are considering a search, the first step is to help another business buyer so you can hit the ground running.

What does it cost?

Searchfunder is a subscription service. We offer flexible monthly, annual and lifetime memberships.

Monthly

$79 / month

Annual

$19 / month

Lifetime

$432 / once

Those who maintain an account with us for over 4 continuous years are permanently added to the community without the need for a membership.

Do I need an MBA to join?

While a large number of our members come from dedicated programs at Harvard Business School, Stanford GSB, Chicago Booth, and other top programs, searching is no longer reserved for the elite. With the current abundance of dry powder in private equity, and an increasing number of business owners reaching retirement age, good deals rarely go unfunded.

Post a question, deal, job, etc...

Make a post...

Complete registration to post.

by a searcher from London Business School
in London, UK

2yrs ago

Software Deal - Customer Concentration

How have others dealt with extreme customer concentration?

I'm looking at a software business with 2 year contracts and 40% EBITDA margins. Serves a large TAM in a growth market. Sticky product. 25,000 users.

But only 5 (blue-chip multinational) customers and the 3 largest are 70% of the turnover.

Suspect this makes it a non-starter, but I'm curious if anyone has acquired a business with similar concentration successfully (or not). I believe there is an opportunity to markedly improve the underinvested sales & marketing operation.

Vendor is also open to favourable transaction structuring.

Like / Comment / Subscribe if you can help ;)

0 Likes

130 Views

reply by a searcher 2yrs ago
from Duke University in Tulsa, OK, USA

Personally I would only pursue such a transaction with a very large seller note that offsets if one of the large customers discontinues their business. In this case I would suggest three different seller notes that represent the value of the business attributed to each of the three large customers. If one of those customer's revenue drops below a certain threshold the corresponding seller note automatically voids.

You can be quite creative in how you structure it but you want to make sure you are safe in the event you lose one of those large customers.

reply by a searcher 2yrs ago
from Southwestern University in Houston, TX, USA

I'd also look at the contract length, if such a thing exists.

The challenge is that no amount of risk information is likely to get software / SaaS owners to agree that their company isn't worth the largest SaaS multiple they've seen. At least not at first.

I like ^redacted‌'s "multiple seller notes" - essentially an earn-out tied to continued revenue from the main clients - approach. It ultimately puts the seller in the position of backing the inevitable, "They've been with us forever and will never change," statement.