Quality of Earnings - Details

February 24, 2024

by a searcher from The University of Chicago - Booth School of Business in Greenwich, CT, USA

Hi there,

What do we need to know when it comes to QOE?

Few things that come to mind:
- what are the firms doing this
- what is exactly involved? What is NOT involved (are they doing any other components of due diligence)
- ho long it takes and what is the output
- what hat is the cost

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Reply by a searcher
in Richmond, VA, USA

Calin - QoE costs are going to be dependend on the deal, but for smaller deals (less than $10MM in TEV), you can expect to pay $20-$30K. The scope should include end-to-end financial diligence (proof of cash, recast PF financial statements, proof of addbacks/adjustments, etc.), but won't generally include any other types of diligence (benefits, tech, HR, legal, etc.). QoE is usually done in two phases. The length of time it takes will depend on seller cooperation and engagement but Phase I should take ~30 days and Phase II will be another ~20-30 days. You should get a final QoE report roughly a month before closing. Hope this helps.

Reply by an intermediary
from Wesleyan University in Needham, MA, USA

I'd be happy to chat here. A big question is how complicated the actual business you are buying is from a revenue recognition standpoint. This blog post on my website explains the different between a cash proof and a QofE. https://www.pemarketplace.co/blog/difference-between-cash-proof-and-quality-of-earnings

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