In Deal Note® 240, we explained why your management team needs to be involved in preparing the Confidential Information Memorandum. This Deal Note® looks at a related risk that buyers dig into early: who actually owns your customer relationships. At many middle-market A&D companies, the founder is still the person the Boeing buyer, the Tier 1 program manager, or the contracting officer calls when something goes wrong. Customers value that relationship, and it may be the reason the business won those programs in the first place. To a buyer, though, every relationship that runs through the owner is one that might leave when the owner does.
Buyers test this directly. In management meetings, they ask who leads each key account, who negotiated the last long-term agreement, and who the customer calls when a delivery slips. If the answer is always the owner, the buyer starts to see revenue that depends on one person. Some buyers respond with a longer earnout or a larger share of the price tied to the owner staying on. Others may lower their price. Either way, the owner ends up paying for relationships that were never handed off.
This won’t happen overnight, so start well before you go to market. Assign an account lead to each major customer, and bring that person to every quarterly review, program meeting and contract negotiation. Over the next 12 to 24 months, gradually step back so customers get used to calling someone other than you. Then, when a buyer asks who takes the call, you can name more than one person, and your customers will name the same people.
If you have a question about this Deal Note®, or have a topic you would like us to write about, please don’t hesitate to let us know.
Have a great day everyone,
Ryan Kirby
Partner
