Client concentration is the share of a firm's revenue that comes from its largest client or a small group of clients. When one client represents more than 20 to 25 percent of revenue, buyers and lenders treat it as a material risk, because losing that single relationship could break the firm's ability to repay acquisition debt.
Why lenders flag it
An acquisition loan is repaid from the firm's future cash flow, and the DSCR math assumes that cash flow continues. If a third of revenue hangs on one relationship, the underwriter has to ask what happens to loan payments if that client leaves with the departing owner. High concentration leads to smaller approved loan amounts, larger seller notes, or outright declines.
The A/E/LS nuance
Not all concentration is equal. Revenue concentrated in a state DOT, a municipality, or a utility under multi-year on-call or IDIQ contracts is institutional work that survives an ownership change, and lenders read it more favorably than the same percentage tied to a single private developer who answers only to the owner's cell phone. Documenting the contractual basis of repeat public work is one of the cheapest ways to defuse a concentration objection.
How it affects price, and how to fix it
Concentration above the 25 percent line compresses the EBITDA multiple and, in third-party sales, invites earn-out structures that put part of the price at risk. An employee buyout blunts the problem, because the project managers who hold the client relationships are the buyers. Owners with a two or three year runway should also diversify deliberately: pushing the top client from 40 percent of revenue to under 25 percent adds value to every dollar of the eventual price.
