Series 79 practice questioneasyDue Diligence
If the top customer accounts for 43% of target revenue, what is the clearest diligence implication?
- AWorking capital can be ignored
- BCustomer concentration risk is elevated and could affect valuation or deal structure✓ Correct answer
- CThe business automatically qualifies as an emerging growth company
- DThe target no longer needs audited statements
Explanation
Why B — Customer concentration risk is elevated and could affect valuation or deal structure
Customer concentration risk is elevated and could affect valuation or deal structure Heavy reliance on one customer makes future cash flows more fragile if that relationship weakens or reprices. Bankers often respond with more diligence, contract review, and sometimes earnouts or holdbacks.
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