A Buyer should assess the strength and predictability of the client base during due diligence. Generally, they will become uncomfortable if one customer has more than 15% of the revenue as this creates a big hole if this customer were to suddenly stop trading with the company, for example. A Buyer should also be looking at debt collection. Customers that are not paying on time, especially over 90 days represent a risk that they may never pay at all or not pay the next invoices due to financial issues. Long-term contracts are ideal but repeating customers who have been buying for a long time are also very good. Sometimes contracts create 'cliffs' where the customer will need to re-evaluate whereas a long- term repeat customer who is habituated to buying from the company could go on for years with no review…so it just depends. The overall objective is to assess the likelihood that the sales volume will continue to drive the profit that the transaction is based on. Often if there is a concern about specific customers some of the valuations can be based on future collections as an earn-out and/or warranties can be introduced if customers were to disappear within an agreed time period. Size of Normalised EBITDA - There is no getting away from the fact that Normalised EBITDA drives valuation in most transactions. It is important to remember that we are interested in future cash flow so at Buyer has to be confident that this will continue after they own the company post-sale. The high the EBITDA, generally the lower the risk. The reason for this is similar to a plane in turbulence. A bigger plane is less buffeted by the winds than a smaller plane. Likewise, a company with a larger EBITDA or cash flows can withstand circumstances whereas a
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