Beginner
Sowerby Packaging is a fictional maker of corrugated boxes, and your client is deciding whether to buy it. The commercial due diligence team comes back with four findings. Which one most threatens the revenue stream the client would be paying for?
- A. Sowerby leases both of its plants on ten year terms rather than owning the sites, so no freehold property comes with the business the client would be buying
- B. One customer is 45 percent of Sowerby's revenue, and that customer's supply contract expires eight months after close with no automatic renewalCorrect
- C. Sowerby's gross margin is two points below the average of the three listed packaging peers the team benchmarked it against
- D. Sowerby turns its inventory four times a year against a peer average of five turns
Takeaway. Rank diligence findings by how much of the forecast revenue they put at risk, not by how unusual they look, because concentration plus a near term renewal beats every level effect.
