Distribution arbitrage
Distribution arbitrage is the gap between what it costs to win a customer segment yourself and what an acquirer pays to get it by buying a company that already serves it. When buying a competitor's customers becomes cheaper than winning them, M&A turns into a game of customer-acquisition cost.
Worked example
Illustrative numbers. An AI rollup wants 1,000 small-business clients in tax advisory.
| Route | Cost | Cost per client | Time |
|---|---|---|---|
| Win them: sales team, events, €750 per introductory meeting, a 1-in-5 close rate, plus onboarding | about €4.5M | about €4,500 | 3 to 4 years |
| Buy them: one firm with 1,000 clients at €3M | €3M | €3,000 | 6 to 9 months |
The gap of €1,500 per client is the arbitrage. It is widest where customers are hard to reach and loyal once won: tax advisors, lawyers, scientists, enterprises.
Two numbers set the exit price
For an AI-era software company, two numbers decide what an acquirer pays: how tightly defined the customer group is (industry, company size, decision-maker), and what those customers cost to win any other way. Revenue matters less, because the software behind it can be copied.
How it differs from
- Multiple arbitrage. Buying companies at 5x earnings and selling the bundle at 12x is a bet on the multiple. Distribution arbitrage is a bet on the price of customers.
- Distribution arbitrage in growth marketing. Growth writers use the same phrase for a cheap channel found before competitors, which closes as soon as others pile in. Here the customers are bought, not reached, and the gap closes only as more acquirers compete for the same firms.
Questions
What happens to the software after the deal? Often it is switched off. Bending Spoons built a business on buying products with large user bases, cutting most of the team and keeping the users. HubSpot did the same with The Hustle.
Do bought customers stay? If service gets better and faster, yes. Earn-outs bridge the first year; the old relationship is the weakest reason customers stay.
What should founders do with this? Build the customer group, not just the product. A hard-to-reach, tightly defined group is the asset a buyer pays for.
Origin
Set out by Viktoria Izdebska in How AI Companies Will Get Acquired: A Founder's Guide to Exit Value (25 September 2026).