Say you buy a machining company for $5.25M on $1.5M of adjusted EBITDA. If you invest in growth that first year, I’d expect you to see about $177K of after-tax distributions, on top of your $150K salary. Nothing went wrong in the quality of earnings review. The price is set on adjusted EBITDA, but the cash you live on is what’s left after capital spending, income taxes, debt service and the working capital your growth plan needs, and in that first year most of it goes back into the plan. In Issue 4 of The Buyer’s-Eye View, I walk one company from SDE down to after-tax distributions for the first three years after close. I also look at a year two where the growth doesn’t come and the lender’s coverage ratio falls to 1.2 times against a 1.25 times floor. That’s the year I’d want to understand before signing an LOI. #QualityOfEarnings #MergersAndAcquisitions #SearchFund #ETAredacted