In Deal Note® 97, published in December of last year, we explained that the cost of a Quality of Earnings (“QofE”) often pays for itself multiple times over as positive adjustments to EBITDA can be identified and factored into the sale process. Today, we will discuss additional benefits of completing a sell-side QofE and why we are advising our clients to have these done before going to market, in almost all cases.
There are three additional benefits to a QofE that we would like to highlight:
- Due diligence support: in addition to the QofE report, by completing a sell-side QofE, you will gain the due diligence support from the team that completed the QofE. Having the support of an experienced sell-side QofE team substantially reduces the strain on your staff during a sale and supports them in responding to the kinds of buyer due diligence demands that they have (most likely) never experienced before in their careers.
- Outside stamp of approval: while potential buyers will complete an independent assessment of the quality of your earnings, buyers give credit to a sell-side QofE report that has been prepared by a well-respected firm.
- TTM analysis: unlike Audited, Reviewed, or Compiled financial statements, a QofE report does not have to be completed as of the close of a fiscal period. A QofE report can be ‘as of’ any time throughout the year and provides an up-to-date Trailing-Twelve Months (“TTM”) view of the business, which is always a focus of potential buyers. Furthermore, if your business is growing, then a TTM valuation will be higher than one as of your most recent financial reporting period (e.g. Year End).
There are more reasons than the above, as to why a QofE is such a powerful tool in the sale process which we will explain in future Deal Notes®.
Have a great day everyone,
Ryan Kirby
Junior Partner
