The Customer Everyone Said Would Sink the Sale: A Deal Lesson

Every advisor has sat across from this company. A well-run manufacturer or service business, healthy margins, a twenty-year history — and one customer that accounts for something like 40 percent of revenue. The owner has heard for years that the account is a liability in a sale. Two earlier conversations with buyers ended at exactly that line. What follows is a composite drawn from several transactions, with the details changed and the mechanics kept accurate, because the way this situation resolves is instructive.

1. The problem was real, but it was not the problem the owner thought

The buyers who walked were not afraid of the customer. They were afraid of what they could not see about it. The account bought on purchase orders — no contract, no term, no volume commitment. The owner had a fifteen-year relationship with the customer's head of procurement, and nobody else at the company had ever been in the room. To a buyer, that reads as a revenue stream that may or may not be there next year, attached to a relationship that leaves with the seller. Buyers price that combination the only way they can: a lower multiple, or an earnout tied to that one account's revenue, or both. The concentration itself was a fact. The unknowability around it was the discount.

2. What changed before the company went back to market

Roughly eighteen months of work, none of it dramatic. First, the relationship got documented: order history by year, the company's share of the customer's spend, and the specific reasons the account had been won and kept — tooling the customer could not easily re-source, a certification few competitors held, proximity. Second, two more people were put into the relationship. The operations lead and a sales manager began attending the quarterly reviews, and within a year the customer's day-to-day contact was no longer the owner. Third, the company asked for a supply agreement. That is not always available, but here the customer valued continuity as much as the seller did, and agreed to a multi-year agreement with volume expectations and a change-of-control clause that did not permit termination on a sale. Fourth, the other 60 percent of the business got real attention, and the concentration came down modestly. None of this eliminated the concentration. It converted an undocumented, personal relationship into a documented, transferable one.

3. How the buyers read the same fact differently

In the process that followed, the identical number — 40 percent in one account — went into buyers' models in a different way. A strategic acquirer in an adjacent product line saw the customer as an entry point it had been trying to open for years, which made the concentration an asset rather than a hazard. A financial buyer saw a contracted stream with a term, a history, and a relationship held by people who were staying, which is something a lender can underwrite. With two credible bidders reading the fact favorably, the structure changed. The earnout tied to the account became a modest holdback. The price landed inside the range for comparable businesses without concentration — not a premium for the account, but no penalty for it either. The gap between those two outcomes is routinely a full turn of earnings or more.

4. What the lesson actually is

Buyers discount what they cannot verify and cannot transfer. That is the whole principle, and it applies well beyond customer concentration — to a key supplier, a founder-held license, a technical lead who is the only person who understands the product. The fix is rarely to eliminate the dependency. It is to make it legible and to make it survivable. Notice also when the work was done. The same four steps attempted during exclusivity, under a buyer's diligence clock, read as scrambling and tend to make the discount larger, not smaller. Done a year and a half ahead of a process, they read as management.

The takeaway

The customer did not sink the sale. It nearly did years earlier, when the relationship was undocumented and personal. The difference between the two outcomes was time and paperwork, not luck and not market conditions. If your business has a soft spot that buyers keep pointing at, the answer is not to hide it or to apologize for it. The answer is to turn it into something a stranger can verify and a successor can keep — and to start well before anyone is looking.

Wondering what your business could be worth? Request a free, confidential market assessment from Jackim Woods & Co., or book a confidential intro conversation with Jim Bates. No pressure, no obligation — just a senior-level read on where you stand.