Capittal's view: one customer is 45% of your sales, can you sell?

Quick answer

Capittal's view is that you can indeed sell a company in which one customer accounts for 45% of revenue, and that the penalty rarely comes as a cut to the multiple. What changes is the structure: the buyer shifts part of the price into earn-out, escrow and deferred payments tied to that customer still being there after closing.

At what percentage does a buyer consider there to be customer concentration?

In the mid-market deals we advise on, Capittal's practical criterion is this: below 15% no buyer raises the issue. Between 15% and 25% it comes up as a question in the first meeting and is settled with an explanation. From 30% it stops being a question and becomes a workstream in due diligence. Above 40% it shapes the price structure from the letter of intent onwards.

45% sits in the upper band. That does not end the process. It means the buyer will build its offer around that customer rather than around aggregate EBITDA.

The percentage of sales is not the only figure they look at. They also work out how much that customer weighs on margin. A customer contributing 45% of revenue and 20% of EBITDA is less worrying than one contributing 45% of revenue and 70% of EBITDA. The second case is the one that genuinely gets penalised.

Why does a fund punish concentration more than a strategic buyer?

The financial buyer is buying a leveraged cash flow. If the customer leaves, the cash flow does not cover the debt and the fund's return disappears. That is why a fund treats concentration as capital structure risk, not commercial risk, and responds by lowering leverage or deferring price.

The strategic buyer is buying capacity, product or market access. It already knows that customer, sometimes already works with it, and knows whether the relationship is stable. When the concentrated customer is precisely the one the strategic buyer wants to win, concentration stops being a discount and becomes the reason for the acquisition.

Criterion	Financial buyer (fund)	Strategic buyer
What it buys	Predictable cash flow	Capacity, product or customer base
How it reads the 45%	Risk of defaulting on the debt	Commercial asset or overlap
Effect on the multiple	Downward pressure	Neutral, or upward if it wants the customer
Effect on the structure	Long earn-out and large escrow	Short or no earn-out
Seller's continued involvement	Requires 24-36 months	Transition period is usually enough
When the deal collapses	If the contract is annual and verbal	If the customer is also its customer and it already has it

The practical consequence is that with 45% you do not go to market with a generic buyer list. You go with a short list of strategics for whom that specific customer has value, and with funds that have already done deals with similar concentration profiles.

What can I do before going to market so it weighs less?

There are three levers and all of them need time. None can be improvised in the month before signing the mandate.

• Multi-year contract. A contract with a three-year term, tacit renewal and a long notice period turns a relationship into an asset. And if it has no change-of-control clause letting the customer walk away when you sell, the buyer breathes easier. Reviewing that clause is the first thing we do.
• Tenure and product penetration. A twelve-year customer that buys four product lines from you and works with three different departments of its own is hard to replace. A two-year customer that buys a single thing from you switches supplier in one meeting. Document the historical revenue series and the breakdown by line.
• An institutional relationship, not a personal one. This is the decisive lever and the one owners find most uncomfortable. If you are the only person who speaks to that customer, the buyer is not buying a customer: it is buying your contacts book. Move the relationship to a sales director or an account team, leave a trail in the CRM and have someone else run the review meetings with you present. With twelve months of contact history that does not go through you, the argument changes.

How is the price structured when one customer accounts for 45%?

The buyer rarely says "I'm lowering your multiple". It says "I'll pay you the same, but part of it depends on that customer staying". The result is a similar headline price and an effective price that depends on you for two or three years.

Mechanism	What it covers	How it applies with high concentration
Earn-out	Continuity of the customer and the margin	Tied to the customer billing a minimum over the following 24-36 months
Escrow	Contingencies and warranties	Larger holdback and slower release than in a deal without concentration
Price adjustment	Loss of the customer before closing	Clause reducing the price if the customer gives notice between signing and closing
Seller's continued involvement	Handover of the relationship	Services agreement with documented transition objectives
Deferred payment (vendor note)	General risk	Replaces part of the cash at closing when the fund cannot raise debt

Our recommendation is to negotiate the design of the earn-out before its amount. A large earn-out with a clean metric under your operational control is worth more than a small one measured on an EBITDA the buyer will decide. Fix the metric, the perimeter, who runs the account during the period and what happens if the buyer itself loses the customer through its own decisions.

What will commercial due diligence ask me about that customer?

Commercial due diligence is not satisfied with the number. It reconstructs the relationship. Prepare this before opening the data room and you will avoid three weeks of delay.

• Current contract, annexes, addenda and renewal and notice conditions.
• Monthly revenue from that customer for the last three to five financial years, broken down by product or service line.
• The customer's gross margin against the company's average margin.
• Evolution of prices and discounts applied, with the increases you have managed to pass through.
• Tenure of the relationship and share gained or lost within that customer.
• Contacts on both sides, with name, role and who speaks to whom.
• Actual collection days and any late-payment incidents.
• Change-of-control clause and any early termination rights.
• Tenders, bids or renewals pending in the following twelve months.

In deals with high concentration the buyer usually asks for an interview with the customer before closing. It happens late, with the process well advanced and exclusivity signed. Anticipating how and when that conversation takes place is part of the adviser's job.

Can I hide the concentration or dilute it before selling?

No. Due diligence cross-checks the general ledger against customer accounts and the percentage shows up in the first week. Discovering the concentration by surprise costs more than disclosing it: the buyer loses confidence in the rest of the information and revises downwards things it had already accepted.

Diluting it with artificial revenue is worse. Pushing low-margin sales to small customers to bring the percentage down leaves a trail in the margin, in collection days and in the monthly series. The analyst spots it and treats it as manipulation of the perimeter, not as growth. On top of that, those forced sales are usually normalised out of adjusted EBITDA and end up subtracting value.

The strategy that works is the opposite. Put the 45% on the first page of the information memorandum, with the contract, the tenure and the margin alongside it. A seller who explains their concentration before being asked controls the narrative; one who is found out negotiates defensively for the rest of the process.

What is the next step if I am in this situation?

The first step is to measure the real impact before deciding whether to sell now or in eighteen months. Capittal prepares a confidential valuation that includes an analysis of your customer base, the effect of that concentration on the price range and on the portion of the price that would be deferred, and the list of buyers for whom that specific customer is a reason to buy rather than a risk.

We are a mid-market M&A boutique in Spain, we work on deals in the 3 to 250 million euro range and we have eight offices: Barcelona as our head office, Madrid, Girona, Lleida, Tarragona, Palma, Zaragoza and Valencia. We are part of the NRRO group. The partner handles the analysis directly, without running the process through a junior team.