The 15% rule — single-client concentration threshold.

Concentration is the risk that hides behind a healthy margin and a growing top line, then detonates after close when the one account that mattered re-shops. The discipline is to find it, quantify it, and convert it into a concrete pricing adjustment before you sign — not to discover it in month three. Two thresholds anchor the work.

§ 01 · Two thresholdsWhere the haircut starts and the structure changes.

The 15% line is where the valuation haircut begins; the 25% line is where cash-at-close gives way to contingent structure — typically 60–70% cash with 30–40% tied to the whale client's retention at 12 and 24 months. Both rest on the same empirical fact: a concentrated client carries a 10–20% probability of re-shopping or leaving within a year of an ownership change. The math is unforgiving — a $1M agency with $300K of normalized EBITDA and a 0.5–1.0× haircut loses $150,000 to $300,000 of consideration on the concentration number alone.

§ 02 · The Top-20 listThe first-ask document.

The diligence artifact is a Top-20 clients list, requested early. For each account it captures the client, trailing-twelve-month commission, share of total, lines held, carrier placement, tenure, and the producer who owns the relationship. From it you read three separate signals: the Top-1 (does the biggest client cross 15% or 25%?), the Top-5 (above 30–35% is a yellow flag), and the Top-10 (the threshold for a separate concentration test). Disclose it early and you get priced on documented fact rather than buyer imagination — buyers discount less for concentration they can see and model than for concentration they discover late.

§ 03 · Transferring the riskThree layered mechanisms.

There are three ways to move concentration risk off your side of the table, used in combination. The valuation haircut is cleanest in the 15–24% band — apply the multiple discount and take the rest as cash at close. The retention-based earn-out is preferred at 25%+, because it converts the risk into a shared incentive: the seller earns the contingent portion only if the concentrated client stays. And specific reps, warranties, and indemnification sit on top — the seller represents no known intent to terminate, no pending litigation, no unrenewed contracts with consent-to-assign triggers, with an indemnification basket sized to the concentrated client's revenue. Many whale commercial accounts have mid-term review structures whose exit window falls inside the typical earn-out period, which is exactly why the earn-out is sized to that window.

§ 04 · The seller's playbookDiluting concentration before sale.

For a seller with 18–24 months of runway, concentration is dilutable, and a buyer modeling the upside should know the levers. Grow the denominator through new business — a 20% client can often dilute to 15% over two years on normal production plus hard-market rate inflation. Deepen the whale relationship with additional lines — a workers'-comp-only account is higher-risk than the same revenue spread across comp, general liability, commercial auto, and cyber. Document durability — a ten-year relationship with a backup producer and a service-manager touchpoint prices very differently from a two-year single-line account managed only by the departing owner. And formalize the terms with a multi-year broker-of-record or service agreement extending past closing. None of this erases the concentration, but it moves the account from "discovered late and priced on imagination" to "documented early and priced on fact" — and that gap is worth real multiple.

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