Selling a Windsor Supplier With One Customer at 40% of Sales

The situation

Simran, Navdeep and Rivka became equal shareholders in their family's Windsor supply business after their father passed away three years earlier. None of the three worked in the business day to day. Simran was a personal support worker, Navdeep drove for the local transit system, and Rivka managed the family's other affairs. A longtime general manager ran daily operations, and the siblings received an annual distribution but otherwise stayed out of the way.

The business supplied parts and small assemblies to manufacturers in the Windsor area, a role that had grown steadily under their father's decades of relationship-building. When a mid-sized buyer approached with an offer to purchase the company outright for roughly $5.2 million, the siblings were ready to sell. None of them wanted to run a business, and a clean sale meant they could each walk away with a meaningful sum instead of an ongoing, part-time obligation none of them had signed up for.

They came to Treadstone Law once the buyer had signed a letter of intent — a non-binding document setting out the proposed price and terms before the buyer commits to a final agreement — and due diligence was about to begin.

What the review found

Due diligence is the buyer's structured investigation into the target company's finances, contracts, employees and legal exposure before signing a binding purchase agreement. Our team reviewed the company's books alongside the buyer's advisors to understand what they would find, and one number stood out immediately: a single automotive-sector customer accounted for about 40% of annual revenue, roughly $2.4 million of the company's $6 million in sales. The relationship had no long-term supply agreement behind it — just decades of informal trust between that customer and the siblings' late father, and more recently the general manager.

Customer concentration like this is a classic deal risk. A buyer paying $5.2 million is not just buying today's revenue; they are buying the expectation that the revenue continues. If the largest customer could walk away on short notice — as it legally could, since there was no signed agreement locking in volumes or a term — the buyer was effectively taking on the risk that 40% of the business could disappear shortly after closing, with no recourse.

The buyer's advisors flagged it within the first week of due diligence and came back with two options: a reduced purchase price to reflect the risk, or deal protections that shifted some of the risk back onto the sellers instead of onto the price. A straight price cut in proportion to the concentration would have cost the siblings a meaningful slice of the $5.2 million — money none of them wanted to leave on the table for a risk that, in the family's experience, had never actually materialized.

What we did

1. Pushed to renegotiate the key customer relationship before closing. We advised the siblings to have the general manager approach the key customer directly, ahead of closing, to formalize a written supply agreement with a multi-year term. The customer, who valued the reliability of the relationship, agreed to sign a two-year agreement with renewal terms — turning an informal, terminable-at-will relationship into a documented contract the buyer could underwrite.
2. Negotiated an earnout instead of a flat price cut. An earnout is a portion of the purchase price paid after closing, contingent on the business hitting agreed performance targets. Rather than accept a permanent reduction to the $5.2 million price, we negotiated a structure where the siblings would still receive the full $5.2 million, with $400,000 of it held back and released over 18 months if the key customer relationship continued and overall revenue held steady. This let the buyer manage its risk without permanently discounting what the siblings received for a risk that might never occur.
3. Built an indemnity holdback into the share purchase agreement. A holdback sets aside part of the purchase price in escrow to cover specific losses if they arise, rather than making the sellers chase payment after the fact. We negotiated a separate holdback, on top of the earnout, tied specifically to customer-related losses in the first year, with a clear mechanism for release if no claim was made — giving the buyer comfort without an open-ended exposure for the siblings.
4. Limited the representations and warranties around the customer relationship. The buyer's first draft of the purchase agreement asked the sellers to guarantee that the key customer relationship would continue after closing — a promise the siblings could not honestly make, since they had no control over the customer's future purchasing decisions. We negotiated this down to a factual representation that the relationship was in good standing and no notice of termination had been received, which is what the siblings could truthfully confirm.
5. Advised each sibling separately on the allocation of holdback risk. Because the earnout and holdback affected each shareholder's eventual payout equally, we made sure all three understood, in plain terms, what circumstances could reduce the deferred portion of the price and confirmed they were aligned before signing. A family group selling together needs to agree on risk-sharing before the agreement is signed, not after a dispute arises among themselves.

The outcome

The sale closed roughly four months after the letter of intent, at the full agreed price of $5.2 million. Of that, about $4.4 million was paid at closing, with the remaining $800,000 split between the customer-performance earnout and the indemnity holdback, both scheduled to release over the following year and a half provided the key customer relationship held and no claims arose.

The new supply agreement with the key customer turned out to be the piece that mattered most. It gave the buyer's lenders enough comfort to finance the deal on the terms originally proposed, and it meant the earnout was structured around a documented, enforceable relationship rather than an informal one that could have ended at any time. Eighteen months after closing, the customer relationship remained in place and the full earnout and holdback amounts were released to the three siblings as scheduled.

The four months between the letter of intent and closing were not entirely smooth. The buyer's advisors pushed hard for a larger holdback than the siblings were initially comfortable with, and there was a tense two-week stretch where the deal risked falling apart over the size of the earnout period. What kept the negotiation moving was framing the conversation around verifiable facts rather than predictions: once the new supply agreement was signed, the buyer's own lender treated the customer relationship as secured rather than speculative, which took most of the heat out of the pricing dispute.

For Simran, Navdeep and Rivka, the result was the outcome they had come in hoping for: the sale of a business none of them wanted to operate, at the price they had originally agreed to, without absorbing a discount for a risk that, once addressed head-on, never actually cost the buyer anything. Each sibling received their share of the closing payment within days of the transaction completing, with the deferred amounts arriving on schedule over the following eighteen months exactly as the agreement set out.

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