Who should see the Quality of Earnings analysis?

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December 04, 2024

by a searcher in Chicago, IL, USA

I have a deal under LOI and my accountants are conducting the quality off earnings analysis. The owner of the company I'm buying and her broker have asked to see the QoE when it is completed. Is that standard practice, or should I only be sharing the report to the bank?

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Reply by a searcher
in Houston, TX, USA
The QoE is intended for your use and that of your advisors. Before sharing it with any party not directly involved on the buy-side, you must have the receiving party execute a non-reliance agreement. Personally, I would never share the QoE, as it could potentially lead to the sell-side revisiting negotiations if the EBITDA is higher or calculated differently. In my current deal, the sell-side attorneys requested the QoE, and I firmly declined. Instead, we only shared selected schedules from the data book, specifically those related to NWC. It is not standard practice to share with the sell-side. I advise proceeding cautiously when the sell-side requests to review your QoE. If they genuinely need it, they should either share the cost with you or carry out their own QoE.
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Reply by a searcher
from Harvard University in Charlotte, NC, USA
Agree generally with the comment above that the buyer owns the QofE, but I would add that sharing it with the seller can be a helpful negotiating tool when QofE findings are in your favor (e.g. revenue overstated or recognized aggressively, costs understated, working capital requirements understated, etc). I would just wait to see the analysis before agreeing to share.
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