The financial heart of every M&A Transaction
QoE findings can make or break a transaction. A well-prepared seller who has done their own QoE analysis before going to market can respond to buyer findings quickly and confidently. An unprepared seller who faces unexpected QoE adjustments during diligence often loses valuation, loses deal momentum, or loses the deal entirely.
For Sellers: Pre-QoE Preparation
CXO Partners CFOs prepare sellers for the QoE process by conducting an internal QoE-style review before the buyer's accounting firm arrives. We identify the issues that will surface, build the support documentation for every add-back, and ensure your financial team can answer QoE questions quickly and consistently. Sellers who come to the QoE process well-prepared move faster, negotiate better, and close at higher valuations.
For Buyers: QoE Analysis & Review
CXO Partners CFOs support buy-side QoE by evaluating the seller's financial claims with a critical, experienced eye. We identify add-backs that should be challenged, revenue recognition issues that affect quality of reported earnings, and working capital positions that may require negotiation. Our buy-side QoE support gives acquirers the financial confidence to proceed — or the leverage to reprice.
$7B+
Client Transactions
50+
M&A Deals and IPOs Supported
20+
Years of PE & M&A Experience
Quality of Earnings Review
Quality of Earnings reports go beyond standard financial statements to truly assess a company’s financial health and performance. These assessments are critical for determining the sustainability and accuracy of earnings, as well as uncovering risks and opportunities that are pivotal in M&A transactions. The specialized capabilities of CXO Partners’ CFO executive consultants allow organizations to avoid last-minute surprises that could disrupt or derail a deal.
Here's what's typically included in a Quality of Earnings (QoE) reports as part of financial due diligence:
Revenue Analysis
Validation of revenue streams to confirm accuracy, sustainability, and repeatability. Identification of one-time, non-recurring revenue events. Segmentation of revenue sources (e.g., by customer, product line, geography).
Working Capital Review
Assessment of working capital requirements to determine if they are adequate and sustainable.Identification of significant fluctuations or patterns in working capital accounts such as receivables, payables, and inventory.
Accounting Policies and Practices
Review of accounting methods and practices for compliance with GAAP or IFRS standards.Identification of aggressive or questionable accounting practices.
Operational Insights
Identification of operational inefficiencies or areas for improvement.Evaluation of business processes that impact financial performance.
Earnings Adjustments
Review of earnings to adjust for non-operational, non-recurring, or one-time expenses and income. Normalization of EBITDA to reflect a more accurate picture of ongoing profitability.
Cash Flow Analysis
Evaluation of free cash flow, highlighting trends and sustainability.Verification of cash flow consistency with reported earnings.
Profitability Analysis
Assessment of gross and net profit margins, highlighting strengths and weaknesses.Analysis of margin trends over time to ensure consistency.
Market and Customer Concentration Risks
Analysis of customer or market dependency risks (e.g., reliance on a single large customer).Evaluation of revenue diversification efforts.
Hidden Liabilities and Risks
Identification of potential liabilities (e.g., lawsuits, off-balance sheet obligations, tax risks). Uncovering risks that may negatively impact post-transaction financials.
Cost Structure Review
Analysis of fixed and variable costs to understand operational efficiency.Identification of non-recurring expenses or excess costs impacting performance.
Management and Financial Controls Assessment
Evaluation of management’s credibility and ability to continue delivering financial results.Assessment of internal financial controls and reporting processes.
Debt and Financing Review
Assessment of the company’s current debt structure and obligations.Analysis of interest coverage and leverage to determine financial stability.
By addressing these areas, Quality of Earnings reports provide a thorough assessment of a company’s financial health, empowering buyers and sellers to make informed decisions during M&A transactions.
Our Team
Chris Gwiazda
Mike Casey
Bill Keneally
Michael Levine
Mark Livingston
What our clients say about us
Within a highly challenging environment, CXO Partners was integral to the development of the strategy and execution of the tactics to protect, enhance, and then secure the value of RiceBran Technologies (NASDAQ - RIBT).
— Multiple Board Members
Our company was acquired by Oracle. [CXO Partners] was a key player in helping to get that accomplished. They are very much integrated into our leadership team.
— Diego Pantoja-Navajas,
Founder & CEO, Logfire
We leveraged [CXO Partners] CFO services to grow. They helped us package two businesses that led to successful M&A exits. I can’t recommend them highly enough.
— Alexei Rojanets, President & CCO, Aptitude Health
Insights
Next Steps
Review our team of experts or schedule a brief call. Once you schedule a call, one of our team members will contact you directly to learn more about your needs.