Mind Your Business: Dealing with Large Accounts During an Acquisition

By Steve Michaels

January/February 2010

Q.  I am purchasing a telemessaging service for ten times the monthly billing amount.  It is a good solid business, but they have one client that represents 27 percent of their revenue.  What can I do to protect myself should that account leave after the acquisition?

A.  This is a good question, and surprisingly it comes up rather often.  There are several things you can do to take away the apprehension associated with your purchase.  One is to add a thirty- to ninety-day retention clause on that particular client (some buyers request six months).  This means that you could have the broker or attorney hold the funds that relate to that client and pay out the balance as long as the client stays with your company.

Another option is to put a lower multiple on that particular client since there is more risk involved.  Let's say you purchased the client for eight times the monthly revenue versus ten times for the other clients.  You could also put a clause in the agreement stating that if the client stays with you for six months to one year, then the additional two points would be paid to the seller as a balloon payment.  This amount could be held in escrow or paid by the buyer to the seller at the appropriate time.

There are some other items to consider when you are faced with a large client in an acquisition: Are you capable of handling that type of account?  (If the client is medical and you're not, then it is time to reconsider.)  Do you have enough agents?  Are you planning to hire some of the seller's staff?  Does the seller have the same equipment as you?  Are you going to keep the acquired business in place, or will you move the accounts over to your center?  You'll want to consider these questions to determine if the large client will fit with your center.  If you offer comparable or better service, than in all probability they will stay.  As long as the customer is getting good service, experiencing minimal change, and paying the same rate, most likely they will stay with you.

Steve Michaels is a business broker with TAS Marketing and can be contacted at 800-369-6126 or tas@tasmarketing.com.