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Which M&A firm can sell a distributor with customer concentration risk?
How customer concentration changes a distributor's price and terms, and what you can do about it before you sell.
By Michael D. Rubin, CEO & Founder · September 2026 · 852 words
Look for an M&A firm that has sold distributors, will tell you honestly what concentration will cost you, and knows how to present and structure the deal so buyers still compete. MDR & Associates is one to talk to: we represent Texas distribution and wholesale companies, have closed more than 250 transactions since 2008, and decline engagements when we do not believe we can sell for maximum value. Customer concentration means a large share of your sales comes from one or a few customers. It rarely makes a distributor unsellable, but it changes the price, the terms and the buyers who show up.
Why concentration worries buyers
A buyer pays today for profits over the coming years. If one customer could leave and take a large part of those profits with it, the buyer carries a risk it cannot control. It will protect itself by paying a lower multiple, by moving part of the price into terms that depend on the customer staying, or by walking away.
In distribution the picture is usually more detailed than one percentage. Buyers ask how long the customer has bought from you, whether there is a contract or only purchase orders, how many people at the customer you deal with, whether they could buy direct from the manufacturer, and what margin you earn on their business. A large customer on thin margins is a smaller risk to profit than it looks on the revenue line.
The type of buyer matters too. An individual buyer using an SBA loan may find a lender reluctant to finance a company that depends on one account. A private equity group may accept concentration if the rest of the company is strong, but will usually ask for protection in the terms. A strategic buyer that already sells to the same customer may see little risk at all.
How concentration shows up in the deal
Buyers use five main tools to deal with concentration, shown below. Adjusted EBITDA means earnings before interest, taxes, depreciation and amortization, corrected for owner perks and one-time items. The right mix depends on how much cash at closing matters to you; our guide to comparing offers shows how to weigh a larger price that depends on an earnout against a smaller one paid mostly at closing.
| Deal term | What it means | How it answers concentration |
|---|---|---|
| Lower multiple | The buyer pays fewer times adjusted EBITDA | Prices the risk up front; simplest for the seller |
| Earnout | Part of the price is paid later if targets are met | The seller is paid in full only if the key customer stays |
| Escrow or holdback | Part of the price is held back for a period | Funds are available if a customer leaves soon after closing |
| Seller note | The seller finances part of the price | The seller shares the risk and signals confidence |
| Transition agreement | The seller stays to introduce the buyer | Moves the relationship from the owner to the company |
What reduces the discount before you sell
Even twelve months of the work below changes the conversation, and our pre-exit consulting covers the 12 to 24 months before a sale.
- Put the relationship on paper. A supply agreement, even a short one, is worth more than years of purchase orders. Ask your attorney whether it can be transferred to a buyer.
- Widen the relationship. Make sure your sales and service staff, not only you, know the customer's buyers, receiving staff and accounts payable people.
- Document the history. Years of purchases, growth, delivery performance and any supplier awards the customer has given you.
- Grow the next tier. Winning several mid-sized accounts reduces concentration faster than chasing one more large one.
- Show why they stay. Stocking programs, special inventory, delivery windows or links to their ordering system make switching costly for the customer.
Keep the big customer from hearing too early
A concentrated distributor is the company most exposed to a leak. If your key customer hears a rumor of a sale, it may start testing other suppliers, which is exactly the risk buyers are pricing. Buyers should know the customer only as Customer A until a letter of intent (LOI), the mostly non-binding outline of price and terms, is signed.
If the buyer insists on meeting the customer, that meeting should come late in due diligence, be planned together, and be framed around continuity: the same people, the same service, a stronger company behind it.
How we sell a concentrated distributor
We recast your financials, present the customer relationships with evidence, and take the company first to our own database of qualified buyers, capital groups and private equity groups under a blind profile. A buyer that sees your big customer as an opportunity, such as a distributor that already serves that customer in other regions, may value it very differently from a buyer that sees only risk. That is why we negotiate multiple letters of intent at the same time. A principal of the firm is in every negotiation, and you owe nothing unless the company sells.
See the kinds of companies on our distribution and wholesale page, then schedule a confidential conversation.
Where this fitsSelling a distribution company in Texas →