Anonymised, illustrative composite. The mirror image of customer concentration: the risk here is continuity of input, and the leverage in any renegotiation runs the other way.
At a glance
The target machines precision structural components for two aerospace primes and a tier-one subcontractor out of a single facility in Quebec, on $9.6 million of annual revenue. Every part it makes is machined from a specific titanium alloy bar stock, and every part is qualified under its customers' own approved-source programmes, which certify not just the target's process but the specific mill the raw material comes from. The target has purchased that bar stock from the same specialty metals mill for eleven years, on standard purchase orders with no long-term supply contract and no exclusivity commitment from either side.
A conventional single-customer concentration review would have missed this entirely, because the target's customer base is reasonably diversified across the two primes and the subcontractor. The concentration sits one level back, in what the parts are made from rather than in who buys them. Diligence found that the mill is the sole qualified source for the specific alloy specification the target's customer contracts require, and that qualifying a second mill is not a sourcing decision the target can make on its own — it requires the end customer's own engineering and quality organisations to approve the new source, a process the target's own records showed had taken fourteen months the one time it had been attempted, for an unrelated material several years earlier.
Every dollar of the target's $9.6 million in revenue depends on continued access to this one mill — effectively 100% of cost of goods sold on the alloy line runs through a single, uncontracted supplier relationship. There was no formal supply agreement to review, only eleven years of purchase orders and roughly six weeks of the target's own on-hand inventory at any given time, which is the entire buffer the business has against any interruption at the mill, whether from a fire, a labour stoppage, a quality failure, or simply the mill choosing not to renew.
No statute governs this. Nothing compels the mill to keep supplying the target, nothing compels the target's aerospace customers to approve a second source on any particular timetable, and the fourteen-month requalification period is not a legal requirement but the practical reality of how aerospace approved-source programmes work: a customer's quality organisation has to re-run material certification, process qualification and, often, first-article inspection on parts from the new source before it can be used on a certified part. The governing constraint is contractual and regulatory-adjacent rather than statutory — it lives in the target's own customer contracts' approved-source requirements, not in any single piece of legislation.
The buyer did not walk from the deal, but did not price it as though the risk were manageable in the ordinary course either. $600,000 of the purchase price was held in escrow for eighteen months, released only if the mill relationship continued on substantially its existing terms, giving the buyer a direct financial remedy if the relationship broke down shortly after closing. Separately, the purchase agreement included a post-closing covenant requiring the buyer to begin formal dual-sourcing qualification with a second mill within 90 days of closing, recognising that the real fix is operational, not contractual — a second qualified source, not a better clause.
Had the relationship broken down without warning after closing — the mill closing a production line, failing a quality audit, or simply declining to continue at existing prices — the target would have had roughly six weeks of inventory before its own production stopped, against a fourteen-month path to a qualified alternative. For an aerospace subcontractor, six to fourteen months of lost production is not a temporary setback; it is the kind of interruption that puts a supplier's own position on its customers' approved-vendor lists at risk, which is a harder thing to rebuild than the supply relationship itself.
The tell was the shape of the buffer, not its absence. Six weeks of inventory against no supply contract is a number a well-run operation carries specifically because it has never needed more — eleven years without an interruption is easy to mistake for a stable relationship rather than an unbroken run of luck. The qualification timeline, buried in the target's own quality records rather than volunteered by management, was what turned a plausible risk into a measured one.
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