Industry Cyclicality: A potential LBO contender should produce steady cash flow. Therefore,from a risk perspective, an investment is less appealing when revenue and demand changes arevery cyclical and reliant on the current economic conditions (or other external variables).
Customer Concentration: As a general rule, no one customer should represent more than 5–10% of total revenue as the risk of losing that key customer due to unanticipated events or the customer’s refusal to continue doing business with them (i.e., decides not to renew their contract)
presents a significant risk.
Customer or Employee Churn: Although each situation will be unique, high rates of customer and employee churn are typically viewed as a bad sign. High customer churn necessitates ongoing new customer acquisitions, while low employee retention indicates problems with the target’s organisational structure.
