How to Price, Structure, and Diligence Around Customer Concentration
Description
This episode is brought to you by Oberle Risk Strategies: Insurance Broker and Insurance Due Diligence Provider for Search Funds and Other Small-to-Medium-Sized Businesses
*
This episode is brought to you by Boulay, the industry standard for Quality of Earnings, tax, and audit services, serving search fund entrepreneurs for 20+ years
*
When evaluating a small business to acquire, to suggest that some form of concentration is common is likely an understatement. Indeed, in most cases, concentration of some variety is a borderline inevitability. Though this often takes the form of customer concentration (the focus of this blog post), it can take other forms as well, including key person concentration, supplier concentration, reseller concentration, and technology/platform concentration, among other forms.
The aim of this blog post is to discuss when customer concentration is acceptable (and when it is not), how to incorporate its associated risks into the transaction’s price and structure, how to diligence the likelihood of those risks manifesting, and the types of business models where the defection of large customers should be viewed as an expectation, and not as an improbable risk.
United States
