Whether related-party sales should be backed out of valuation from customer

Situation

Commercial-diligence partner in a family-office reviewing a manufacturing target has one working extract — customer concentration and termination-for-convenience clauses — after IT diligence showing two ERPs and no chart of accounts map. If customer concentration and termination-for-convenience clauses cannot support related-party sales should be, the honest M&A Due Diligence output is hold.

Decision

Commercial-diligence partner in a family-office reviewing a manufacturing target must choose Proceed / Reprice / Walk / Hold using customer concentration and termination-for-convenience clauses after IT diligence showing two ERPs and no chart of accounts map.

Hypotheses to test

• Commercial-diligence partner can defend Proceed from customer concentration and termination-for-convenience clauses after IT diligence showing two ERPs and no chart of accounts map in a M&A Due Diligence challenge.
• Commercial-diligence partner cannot defend Proceed from customer concentration and termination-for-convenience clauses; Reprice is what the extract actually supports after IT diligence showing two ERPs and no chart of accounts map.
• IT diligence showing two ERPs and no chart of accounts map never reached the population in customer concentration and termination-for-convenience clauses — reopen intake, do not close related-party sales should be.
• Two facts in customer concentration and termination-for-convenience clauses after IT diligence showing two ERPs and no chart of accounts map conflict for commercial-diligence partner; hold this Earnings and Revenue Quality file.

Analysis required

• Separate a one-off add-back from a recurring earnings issue in customer concentration and termination-for-convenience clauses.
• Map reps, earnout mechanics, and integration risk a family-office reviewing a manufacturing target would inherit.
• Tie quality-of-earnings, working-capital, and contingent items in customer concentration and termination-for-convenience clauses to related-party sales should be.
• For this M&A Due Diligence Earnings and Revenue Quality file, read customer concentration and termination-for-convenience clauses against IT diligence showing two ERPs and no chart of accounts map and write the one fact that would move related-party sales should be for commercial-diligence partner.