Importance of Sell-Side Quality of Earnings Analysis

This whitepaper discusses the significance of conducting a sell-side Quality of Earnings (QofE) analysis in mergers and acquisitions (M&A). It outlines how a QofE analysis serves as a critical component of financial due diligence, identifying the business's profitability through adjusted EBITDA and assessing net working capital requirements. The document explains that engaging a QofE team can lead to a higher sales price by uncovering expense adjustments that enhance profitability. It also highlights the risks associated with inaccurate profitability representations, which can lead to deal failures. The analysis prepares sellers for buyer diligence, expediting the process and minimizing transaction delays. Furthermore, the QofE team can identify potential issues before the deal goes to market, allowing sellers to address them proactively. The paper emphasizes the importance of establishing a reasonable net working capital target and minimizing disputes related to working capital. Overall, the whitepaper advocates for sellers to utilize a QofE team to enhance their negotiating position and improve transaction outcomes.