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- Is revenue concentration a show-stopper in SaaS M&A? Not with our DD guide!
Is revenue concentration a show-stopper in SaaS M&A? Not with our DD guide!

Disclaimer: Unless noted otherwise, views and analysis expressed here are the author's own and based on public sources. The article is intended for informational and entertainment purposes only. This is not financial advice. Please consult a professional for investment decisions.
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Revenue concentration in any industry is an M&A bugbear. Ignore it at your peril!
No-one is safe. The AI boom may have propelled Nvidia’s share price into the stratosphere - and yet, its top 3 customers still account for c.30% of revenue.
CoreWeave, the US cloud computing company that recently went public, is a poster child for revenue concentration. An estimated 70% of its revenue come from cloud hyperscalers (source). This, plus seeing how entwined CoreWeave’s fortunes are with Nvidia’s - its shareholder, supplier, and customer - made investors uneasy.

Finally, we keep hearing about Constellation Software acquiring businesses with just one customer. That's some nerve!
Today we'll dive into:
The 6 shades of revenue concentration in SaaS
How to identify, and mitigate risks at each stage of the acquisition process
The RollUpEurope playbook for assessing customer concentration
Let’s go!
Before we kick off: shoutout to our longtime partners SourceScrub and PPH Financial for supporting the serial acquirer community. Meet them at the next Software Serial Acquirers Summit in London, on 6 May! Register here.

The 6 shades of revenue concentration in SaaS are…
Simple customer concentration
Parent / subsidiary concentration
Reseller / distributor concentration
Single app marketplace exposure
Platform dependency
Feature concentration
Let’s review each one in detail.
1. Customer concentration
In enterprise SaaS, customer concentration is very common. Consider a target where top 20 clients contribute over half of revenue. These large customers disproportionately impact profitability. For a $5M ARR business to lose a $1M account could wipe all profitability and trigger goodwill impairment.
Acutely aware of this vulnerability, sellers will tell you that:
“Our software is mission-critical, deeply embedded in the customers’ workflows - and therefore unviable to rip out”
“There has been 0 churn historically”
Both these statements could be true…but let’s consider empirical evidence. According to a Constellation Software survey, the largest customer is ALWAYS lost within 5 years of the deal closing.
What can you do? During the diligence phase, request a list of the largest customers - anonymised, if the seller is unwilling to share names in early DD. As a condition precedent, stipulate satisfactory voice of customer interviews. Do these interviews yourself or engage a trusted consultant.
2. Parent / subsidiary concentration
Let’s now go one level deeper and look at parent / subsidiary concentration. Highly successful enterprise businesses achieve sustained growth by cultivating relationships with very large multinational corporations. The subsidiaries of such corporations may not even bear the same name, obscuring the oversized exposure. I had a case where the No.1 disclosed customer was shown to be 5% of sales, but at a closer inspection turned out to be 20%!
Let’s hear it from the sellers once again:
“We contract with each entity separately”
“These are independent subsidiaries that don’t talk to each other”
“We may have lots Spain, but still have the UK, Germany, and Thailand”
All of these arguments hold water in a business as usual context. But what happens if the client itself becomes an M&A target? The acquirer may naturally want to consolidate the technology stack by moving customer to another provider, and reduce the number of vendors. What if there is a groupwide drive to slash costs?
To DD this type of concentration, confirm the following early on in the process:
Common ownership of customers
Customer names - to identify those under the same corporate umbrella (e.g., Microsoft Turkey, Microsoft Spain etc.). Consumer businesses in particular tend to have stables of local brands
Which customers have a master services agreement (MSA) with the HQ and discuss terms of such agreements with the sellers
M&A and restructuring activity in the Top 20 customer base
3. Reseller and distributor concentration
As we explained in this article, some enterprise software (think ServiceNow or Salesforce) is so complex it requires an army of installers and services to keep it running smoothly. Economies of scale dictate frenetic levels of M&A activity among software resellers and distributors. One manifestation of this activity are Atlassian partner rollups like Adaptavist and TIMETOACT (link to our deep dive).
While it is unlikely that ServiceNow (FY 2024 revenue: $11B) or Atlassian (FY 2024 revenue: $4B) lose sleep over their partners, for smaller software vendors the calculation is different.