Navigating client concentration in the sale of an IT services business

This case draws on two of our IT services sales. Details are changed or left out for confidentiality.

Your best client, through a buyer's eyes

From the inside, a large client is a track record. You won a demanding enterprise account, your team proved itself, the scope grew year after year, and that client became the reference that won you the next ones. Growing the account was the right call for the business you were building.

A buyer reads the same numbers differently. It sees a large share of revenue that depends on one procurement decision, often held together by a handful of people on your side. The question isn't whether the relationship is good. It's what the business is worth if the relationship ends, and who carries that risk.

Case study: the business

A software engineering services company whose team works inside the engineering organisations of a few large enterprise clients. One of those clients accounted for 22% of revenue.

How buyers price the risk

Concentration is one of the things that can kill a deal. When it's too high, many buyers simply won't proceed. At a level buyers can manage, the concentration shows up somewhere else: in the deal structure.

That's what happened here. Most of the proposals we received shared the same shape: a very low payment at closing, with most of the price deferred into an earn-out tied to the business's performance after the sale. On paper, the headlines were acceptable, but the guaranteed portion was too small. In practice, each buyer had moved the concentration risk back onto the founders.

Who the buyer is matters as much as the risk

The founders had already tried to sell through an advisor who focused on financial buyers, and it went nowhere. That's not a surprise. Buyers don't all look at the same risk the same way, and in IT services the difference is especially wide.

We work with a broad range of buyers, but in IT services strategic buyers are, in most of our deals, the most likely acquirers. The synergies are direct: more engineers to deploy, a new client base to sell their own services to, often a new vertical or capability. That comes with a different risk profile: a strategic buyer sees the client relationship as something it can build on, so it can underwrite exposure that a purely financial buyer isn't comfortable with.

How we approached the risk

We couldn't change the client mix before the sale. What we could change was how buyers understood the risk, which buyers saw it, and how exposed the deal was to the people behind the relationship.

1. We started from the relationship, not the revenue split

A revenue split tells a buyer how large the exposure is. It says nothing about how likely the client is to leave, and that's what drives the structure of an offer. So we looked into the relationship itself: the team's strategic role in the client's operations and R&D, the knowledge it held, and what it would take for the client to replace it. That's what we put in front of buyers, alongside the numbers.

2. We went wide to find the buyer with the strongest fit

The goal wasn't to find any buyer willing to take the risk at a discount. It was to find the one for whom the fit was strong enough to take the concentration on, and in the best case to see the client itself as part of the value: a group that wants a foothold in that client's industry, or the delivery capability that serves it. Those buyers are rare, and they're rarely the obvious names, so finding them meant approaching a very large number of strategic buyers well beyond the founders' own segment.

3. We secured the key people early

Concentration in a services business is rarely only about the client: it's also about who holds the relationship. Here, one team lead ran the main client's delivery, and the client valued her highly. For the buyer, keeping her was a condition, not a preference. Identifying those people early lets you settle how they'll be retained before it becomes a point of negotiation: a retention bonus, a defined role in the combined group, and in some deals a share of the equity.

This deal was a great example of why, in IT services, you have to go broad and be smart about who you approach. We spoke to a very large number of strategic buyers to find the few for whom the fit was strong enough to look past the concentration.

NNedko KolevPartner, Nextoria

If your revenue is concentrated

Buyers increasingly favour IT services firms with enterprise clients: those relationships are stickier as the market turns more conservative and AI changes what clients buy. But what they want is several deep enterprise relationships, not one. Depth with one client makes concentration easier to underwrite. It doesn't make it disappear.

Diversifying takes time, and so does building the case for the accounts you have. The earlier you start, the more of it you can change before a buyer looks.

What is your IT services business worth? Try our valuation tool →

Written by Aïda Aït-Ahmed, Co-Founder, Nextoria