Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / Why a Single Client Crushed This Printing Business Valuation
Transcript
- Lucas: So we've talked about a lot of businesses that sold at double-digit multiples, sometimes even eye-watering numbers like 12 times EBITDA for a welding supply shop. But today I want to flip that entirely and look at a deal where the multiple was barely above one. Luna: Oh, this sounds like the opposite of the usual 'how they got a premium' story. Lucas: Exactly. This is a commercial printing company in the Midwest, family owned for about 30 years. They printed catalogs and marketing materials — high-quality work. They had built a great reputation. But their revenue was heavily concentrated with one client: a large national retailer. Luna: How concentrated are we talking? Lucas: Eighty-five percent of their top line came from that single account. The printer had grown alongside that retailer for over a decade, and the relationship was profitable. But when that retailer filed for Chapter 11 in late 2025, the printing business lost eighty percent of its revenue almost overnight. Luna: That's brutal. So by the time they tried to sell in early 2026, what happened? Lucas: The owner, who was in his mid-60s and ready to retire, brought in a broker. They initially expected maybe 4 to 5 times trailing EBITDA based on industry benchmarks for commercial printers. But every buyer who looked at the financials flagged the same issue: massive customer concentration, and now the biggest client was gone. Luna: So they got lowballed. Lucas: The best offer they got was 1.5 times EBITDA. And that was from a strategic buyer — another printer who thought they could merge operations and cross-sell to the remaining customer base. The final sale price was under one million dollars, even though the business had been doing two million in EBITDA before the retailer collapsed. Luna: Wow. So the multiple just cratered. Why do buyers react so strongly to concentration, especially when the client is already gone? Lucas: Two reasons. First, the loss of revenue is already baked into the financials — next year's EBITDA will look nothing like last year's. But second, buyers worry about the underlying dependency. If the business was built around one client, the processes, the equipment, the sales team — a lot of that might not transfer easily to a broader market. Luna: Right, so it's a risk that the new owner can't just 'work harder' to fix. It requires a fundamental shift in the business model. Lucas: Exactly. And lenders feel the same way. When a buyer goes to finance an acquisition with customer concentration, banks will either decline the loan or require a much higher equity contribution. That constrains the pool of buyers and pushes down the price. Luna: So what could the owner have done differently? Is there a way to de-risk at the moment the big client starts to wobble? Lucas: The ideal time to address this is years before a sale. But even when trouble hits, you can take steps. One route is to aggressively replace that lost revenue with smaller clients. It's hard to do quickly, but even showing a pipeline of signed contracts can help. Another option is to consider a seller note or earnout — the seller accepts deferred payments that are tied to the business hitting certain revenue targets. Luna: That makes sense. The seller shares some of the risk, so the buyer is more comfortable with the base price. Lucas: Right. In this case, the seller didn't want to wait around to rebuild revenue. He was done. So he took the offer and walked away. But it's a cautionary tale: if your business relies on one big fish, your multiple is essentially sitting on a landmine. Luna: We talk a lot about how to maximize multiples, but sometimes the biggest value destroyer is something the owner didn't even think about. Client concentration. Lucas: And it's not just about the loss of revenue. Even if the big client stays, buyers will discount the business because they perceive it as risky. I've seen businesses with a single customer trading at multiples one to two turns lower than their diversified peers. Luna: So what's the threshold? How much concentration is too much? Lucas: There's no hard rule, but most professional buyers start to get uncomfortable when any single client accounts for more than twenty to twenty-five percent of revenue. If it's over thirty percent, you'll see a noticeable discount. Above fifty percent, you're in the danger zone where some buyers won't even look at it. Luna: And for the printing business, it was eighty-five percent. That's not just a red flag — it's a blaring alarm. Lucas: Yeah, exactly. There's a parallel here with the episode we did on key person risk. In that case, the business was dependent on a single person. Here, it's dependent on a single customer. Both create a fragile enterprise that a buyer has to fix or accept risk. Luna: And in both cases, the multiple suffers. So what's the takeaway for owners listening today? Lucas: If you're thinking about selling in the next few years, take an honest look at your customer concentration. Map out your top ten clients and their share of revenue. If any one is over twenty-five percent, start diversifying. Even small steps — landing five new smaller accounts — can dramatically change the story you tell a buyer. Luna: And if you're already in a situation like the printer, with a concentration problem that's come to a head, don't assume you have to accept a fire-sale price. Consider earnouts, seller financing, or bringing in a partner to help rebuild before listing. Lucas: Right. The worst thing you can do is ignore it and hope a buyer overlooks it. They won't. And that's the real lesson: valuation is not just about how much money you made in the past — it's about how predictable and sustainable that money is going forward. Luna: That's a great point. And if today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. Lucas: Yeah, it genuinely helps. We keep the shows focused on real numbers and real cases, and that's possible because of listeners who chip in. So if you got something out of this episode, that's the place. Luna: Alright, back to the topic. Lucas, you mentioned the printer had a strategic buyer who saw potential in the remaining customer base. Did that buyer actually succeed post-acquisition? Lucas: It's early, but I've been following it. The acquiring printer had a strong sales force and existing relationships in the same region. They managed to retain about thirty percent of the lost revenue by cross-selling their own services to the printer's smaller clients. But it'll take a couple of years to see if they can fully replace the big retailer. Luna: So the story's not over. But for the seller, the chapter closed at 1.5 times EBITDA. A tough but important lesson. Lucas: Absolutely. And I think that's the kind of story that sticks with owners. It's easy to get excited about the businesses that sold for 12 times EBITDA, but understanding why some sell for 1.5 times is just as valuable. Luna: Good reminder. Thanks, Lucas. Lucas: Thanks, Luna.