Sole Supplier Vendor Diligence Insights + Risk Mitigation?

May 08, 2025

by a searcher from University of New Mexico in Jackson, WY, USA

I’m actively pursuing—but pre-LOI on—a B2B construction/industrial design/product business that relies on a single third-party manufacturer for its products (which include both off-the-shelf and custom designs). Needless to say, this can pose significant risks... What are some of the key things you would prioritize when conducting diligence on this supplier—and what steps would you take to mitigate some of the inherent risks (any recommendations besides the obvious tools of a seller’s note, earn outs, etc.)? For context, the manufacturer is not aware of this business being for sale, the relationship is over a decade old, and it is not the result of personal or familial relationships. The companies’ history together—rather than any contractual agreement—is seemingly the basis of their ongoing relationship. Thanks in advance for any insights you are able to share.

Reply by a professional
from University of Michigan in Detroit, MI, USA

Hi ^redacted‌, on the plus side, this problem is better than "the business has one material customer," as, ultimately, the supplier is in the business of selling products to the business. But you're right to be cautious. Some questions: (1) Is the contract assignable (assuming you're doing an asset purchase)? (2) Is there a change of control provision (regardless of whether you are buying stock or assets)? (3) What's the term of the contract? (4) What are your renewal options? (5) On what grounds can the supplier terminate the contract? (6) Does the supplier rely on a global supply chain (in particular, China)? (7) How easy will it be to diversify your supplier base post close? This last question gets at the true way to mitigate this risk. A forgivable seller note etc. is a bridge to give you time to act post close. Let me know if you want to discuss further. Feel free to reach out at redacted

Reply by an intermediary
from Rochester Institute of Technology in Lakewood Ranch, FL, USA

One supplier is certainly a risk, but as ^redacted‌ already noted extremely well, this is much less concerning than a single customer generating a significant portion of revenue. The size of the business in question will determine how cost effective it would be to diversify suppliers, but it is something you should create a plan for post-acquisition (at the very least test out alternative suppliers so you can pivot and ramp up quickly if the need arises). Also, you could consider purchasing the supplier itself as well.

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