How would you approach the analysis of a target company's customer concentration, considering the potential risks and opportunities associated with a high concentration of revenue from a single customer or a small group of customers?
A core M&A Advisory interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
To analyze a target company's customer concentration, I would evaluate the revenue split among the top customers, assess the contracts and agreements in place, and consider the potential risks of customer loss or renegotiation. I would also evaluate the target's diversification strategy and the potential opportunities for growth with existing customers or the acquisition of new customers.
WHAT INTERVIEWERS LISTEN FOR
- ✓Revenue split among top customers
- ✓Contracts and agreements
- ✓Diversification strategy
COMMON MISTAKES
- ✗Failing to evaluate revenue split
- ✗Ignoring contracts and agreements
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