Why Predictable Revenue Can Still Complicate a Sale by Nandhini Ganesan

In M&A, long-term contracted revenue is often treated as the gold standard. Predictability implies stability, stability implies lower risk, and lower risk should support valuation.

In practice, some of the most difficult sale processes involve businesses with exactly this profile.

Across multiple transactions we’ve advised on, companies anchored by long-dated customer contracts often attract strong initial interest — only to encounter friction as buyers move from headline stability to detailed underwriting.

The issue is not whether the revenue exists. It’s how transferable and flexible that revenue really is.

The Stability Paradox

On paper, long-term contracts offer everything buyers claim to want: visibility into cash flows, embedded customer relationships, and high switching costs.

Early in a process, these attributes anchor valuation expectations and drive inbound interest.

But predictability without flexibility can introduce constraints. Contracts that lock in revenue may also lock in pricing, margin structure, and growth pathways. As diligence progresses, buyers begin underwriting not the current contract — but the next negotiation.

That shift in focus often changes how stability is valued.

How Concentrated Contracts Get Underwritten

In deals where a significant portion of revenue is tied to one or a small number of customers, several buyer concerns surface consistently:

• Renewal leverage matters more than remaining term. Even with years left on a contract, buyers focus on where leverage sits at reset — especially when customer alternatives exist.

• Pricing upside is often capped. Escalators may preserve revenue, but they rarely capture full market repricing, limiting margin expansion.

• Growth can be structurally constrained. When meaningful growth depends on renegotiation rather than expansion, buyers discount future optionality.

• Re-exit risk becomes front of mind. Financial sponsors, in particular, assess how the same concentration will be viewed by the next buyer.

  
  

In one transaction we advised, the business had a long-standing, multi-year contract with a blue-chip customer that represented a majority of revenue. Initial indications of interest were strong. As diligence progressed, however, nearly all buyer conversations converged on the same question: what happens when this contract resets?

The valuation gap that emerged had less to do with current performance — and more to do with perceived negotiating dynamics five years out.

Where Sale Processes Commonly Stall

These dynamics tend to show up in familiar ways:

• Strong IOIs followed by hesitation post-diligence

• Disproportionate focus on a single customer or contract

• Downside cases driving valuation retrades

• More conservative financing terms from lenders

  
  

None of this reflects a weak business. It reflects disciplined underwriting.

Buyers aren’t disputing the revenue. They’re questioning how resilient it is through a change of ownership.

Making Predictability Bankable

The goal is rarely to eliminate concentration. Instead, it is to make it understandable and financeable for a buyer and their lenders.

What has proven effective across transactions includes:

• Reframing the contract as a platform, not a dependency. Position the relationship as enabling scale, efficiency, and adjacent opportunities — not as a single point of failure.

• Leading with downside math. Proactive sensitivity analyses around margins, cash flow, and leverage under conservative scenarios help control the narrative.

• Demonstrating renewal behavior, not just contract length. Historical negotiations, pricing resets, and volume stability matter more than remaining years.

• Separating relationship risk from business risk. Buyers need confidence the relationship is institutional, supported by systems and processes rather than individuals.

  
  

Strategic buyers often view these situations differently. Their ability to diversify revenue, cross-sell into existing customers, and extract cost synergies can quickly reduce concentration risk post-acquisition. What may appear as a constraint to a financial buyer can become an opportunity for a strategic acquirer.

The Advisor’s Role

In transactions anchored by predictable but concentrated revenue, the advisor’s role goes beyond highlighting stability.

The real work is translating that stability into transferable value — anticipating where underwriting tightens, preparing management for hard questions, and framing risk in a way that is transparent, modeled, and manageable.

When done well, predictability remains an asset — just one that is properly understood, rather than over-relied upon.