The clean-looking deal with a 24% problem.
How a buy-side Quality of Earnings kept a searcher from overpaying, without killing the deal.
Illustrative sample.
Built on a fictional composite (Hoosier Supply Co.) to show the format and the kind of read we deliver. Real, named, client-approved case studies replace this as engagements close. We never manufacture proof.
+50%
Reported to adjusted EBITDA, every add-back documented
24%
Revenue in a single customer, with no supply agreement
~3 wks
From complete data to the findings readout
The situation
A self-funded searcher was under LOI on an HVAC and plumbing distributor doing about $11.0M in revenue. The broker's book read clean. With an SBA loan and a personal guarantee on the line, the buyer wanted to know the number was real before wiring the deposit.
What we did
A full buy-side QoE: we tied reported revenue to the cash in the bank (proof of cash), tested every add-back against source documents, built the working-capital peg, and ran the customer and margin analysis. A management interview filled in the story behind the numbers.
What we found
The earnings held up. Reported EBITDA of $833.5K over the trailing twelve months normalized to $1,247.1K, up 50%, and every accepted add-back had a document behind it: owner compensation to market, the payroll tax that travels with it, personal and discretionary spending, and related-party rent above market. A one-time legal settlement was real, but it fell in FY2024, outside the trailing twelve months, so it does not lift the current number. We rejected three items the seller wanted added back, $139.0K in all: a rebrand that recurs on a refresh cycle, a round-number personal-expense estimate with no ledger tie, and a marketing program that runs every year. Those rejections are why the rest of the schedule holds.
The catch surfaced in the concentration work: the largest customer was 24% of revenue and the top ten were 70%, and that largest account buys order to order with no supply agreement, so there is nothing to assign at close. If it left after close, the buyer would have owned a materially different business than the one on the page.
The outcome
The buyer did not walk, and did not overpay. They used the finding to restructure the deal: the seller agreed to rebate part of the price if the top accounts left, a rebate that pays down principal on an SBA loan; the working-capital peg was set so they were not short of cash on day one; and the concentration risk was covered in the reps and the rebate terms. The deal closed with both sides working from the same numbers.
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