Would you pay for an AI generated QoE?
February 04, 2025
by a professional from University of California, Berkeley - Haas School of Business in New York, NY, USA
Curious what the consensus on QoE services would be. I hear of many searchers skipping this process due to its steep cost, I hear of others mandating it in their diligence process and racking up the expense over several LOIs.
Has anyone come across something like this in the market? Is there any demand for something like this?
What do these QoE service providers do that plugging up an ERP + other source systems to an algo cannot do (assuming you're not looking at a business doing napkin + spreadsheet accounting)?
from St. John Fisher College in New York, NY, USA
It is exactly what Anthony mentioned above, in order to leverage AI, the underlying accounting systems effectively need to have everything correctly within or flowing to it correctly from any outside systems for revenue/invoicing and payroll, or it has to all be within that same system, so that customer data, vendor data, and personnel data are at the level needed to take it and analyze it, and do with it what needs to be done AND it has to be good data (cannot be disparate, unorganized and uncleansed).
Even if all of this data is within the system, there is likely going to have to be some human intervention to appropriately assess how revenue should be accounted for, especially in more niche and complex industries, and downstream how getting that right (or wrong) has downstream implications with the purchase agreement and potential adjustments, and what is negotiated. In addition, AI would have to be able to understand what potential diligence and pro forma adjustments are based on how you perceive the business and your expected operational synergies in order to apply those adjustments to get you to an adjusted EBITDA figure, in addition to identifying one time, non-business related items.
As expensive as QoE's can be, if you are working with the right team, you will realize that value at some point in the process, either by them helping to corroborate the value you are underwriting enterprise value at (or not, and finding out you are paying a much higher multiple then expected), helping you find opportunities to save on the purchase price by effectively understanding where to set the PEG and what should or could be considered more as a debt or debt like item, and/or identify opportunities to optimize your financial operations post-acquisition.
Again to Anthony's point, we see less than 10% would be ready for AI/ML whereby it could easily take the data and do everything needed to output you with a perfect QoE. AI will disrupt this market to some extent eventually, but I think the really good M&A Advisors within accounting, tax, legal, tech, etc., will still be a valuable resource that will harness the technology and work with it hand in hand in order to focus on the big ticket items and less with the data wrangling and databook compilation.
If you are looking for a solution to output data directly from Quickbooks, Sage, or NetSuite for a target that gets you off to a good start, I would recommend reaching out to the team at StrongBox and considering their product to get you started with your diligence if you plan to do it yourself.
from University of California, Berkeley in Seattle Metropolitan Area, WA, USA
Have heard of a few recently but usually wrapped within a marketplace/platform. Or I'm sure there are some low-medium quality QoE providers doing this to cut costs even further.
I guess if you're checking the box or using it as a base for your projections with a 'trusted 3rd party', then it could be useful in that regard. But I doubt it passes any of the sniff tests for a) larger deal where lenders scrutinize, or b) give you more visibility to the real flow of money within the business if it requires seller/controller/cfo/bookkeeper discussions. Ex: saw a construction co bought that only did project costing / WIP at 6 month intervals, and that was only because they had 2 entities to the co that were on different fiscal years. Also, did a deal where there were very large capital outlays for equipment which were irregularly depreciated and needed to be projected for both upkeep/maintenance and replacement, as well as a catchup on replacement for regulation requirements that had been paused during covid times.
Lots of small businesses have cash/accrual problems (or mismatched) and thus poor revenue accounting, improperly done payables/receivables for the work being outlayed, etc....
I talked with 10 founders / agency owners in the space who put estimates of wrong/poor accounting/books at 95% or higher within the lower middle market and below. That feels a LITTLE high, but realistically it's still probably 4 in 5 companies. So, garbage in, garbage out.
All this is to say that it's possible, but really depends, then, on the circumstance. I guess the bright side is that it's likely possible in the near future, and training on any/all deals can't hurt. But the best QoE providers know that they're going far above and beyond to put the searchers in the best position to start with an accurate view of the books/accounting and go from there with the deal. Some great ones stay on for the first###-###-#### days to provide support ahead of bringing a bookkeeper/controller familiar enough with the processes.