Quality of Earnings Reports
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Here in the U.S. there is an increasing trend in sellers and buyers contracting independent financial professionals to conduct Quality of Earnings Reports. The overall objective is to do a rather rigorous analysis of all the operational and financial aspects of a potential target business. This work can be relatively expensive but can give buyers confidence in an independent appraisal of the targets quality of earnings, margins, EBITDA, and importantly the projections of these key aspects of the business going into the future. Having just finished the first module of the Essentials of M&A four part course, I did not see any mention of this practice during the typical deal cycle. I work for a consulting firm as a CPA/Analyst but I am not involved on the front end of trying to match buyers and sellers. I was wondering how many of you “deal makers” are utilizing this tool of QofE reports in your practices?
Robert Swedberg
I believe it’s related to private equity backed deals which are much more commonplace in the United States. I’ve personally noticed buyers are much more likely to request a formal QoE analysis if they are a private equity firm or a private equity backed firm, it seems to be a core requirement for them.
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