Know the Earnings Behind the Deal
In an M&A transaction, reported financials are only part of the story. A Quality of Earnings (QoE) analysis provides an independent, transaction-focused assessment of the financial performance behind a business; helping determine whether reported earnings are accurate, sustainable, and representative of what a buyer can expect going forward.
For AEC firms, that analysis requires more than reviewing a general ledger. Project performance, WIP, revenue recognition, backlog, change orders, utilization, margins, working capital, and other industry-specific factors can all influence the earnings a buyer ultimately underwrites. Whether you’re acquiring an AEC firm or preparing one for sale, a QoE analysis provides greater clarity around the earnings that ultimately support the transaction.
What is a QoE?
Go Beyond the Financial Statement
A QoE determines the sustainable earnings of a firm by examining the underlying drivers of revenue and profitability, nonrecurring or unusual items, and financial risks that could impact a transaction. The result is greater clarity around the earnings a buyer can reasonably expect to continue.
- Normalize EBITDA and earnings
- Evaluate revenue and margin trends
- Identify risks and unusual or nonrecurring items
- Assess working capital and other transaction considerations
Buy-Side QoE
Understand What You’re Really Buying
A buy-side QofE gives strategic buyers an independent view of a target’s financial performance before they commit capital. It helps validate the earnings supporting the purchase price and uncover issues that could affect value, deal terms, or future performance.
- Validate the earnings behind the deal
- Test EBITDA adjustments and add-backs
- Identify financial and operational risks
- Inform valuation and negotiations
- Increase confidence in the investment
Sell-Side QoE
Know Your Numbers Before the Buyer Does
A sell-side QofE helps owners understand, substantiate, and strengthen the financial story behind their business before entering buyer diligence. By identifying potential issues early, sellers can address concerns proactively and enter negotiations from a position of greater confidence.
- Substantiate sustainable earnings and EBITDA
- Identify and address potential deal issues early
- Prepare for buyer diligence
- Reduce surprises and renegotiations
- Strengthen your position in the transaction
Why AEC Expertise Matters
AEC Firms Aren’t Like Other Businesses
WIP, project margins, backlog, change orders, revenue recognition, retainage, and working capital can all influence the quality and sustainability of earnings. Our AEC expertise allows us to understand what’s behind the numbers and identify the issues that matter most in an AEC transaction.
- Understand project-level profitability and WIP
- Evaluate the quality of backlog and future revenue
- Assess project and customer concentration
- Identify AEC-specific earnings risks
- Connect financial performance to transaction value
Go Beyond the Financial Statement
A QoE determines the sustainable earnings of a firm by examining the underlying drivers of revenue and profitability, nonrecurring or unusual items, and financial risks that could impact a transaction. The result is greater clarity around the earnings a buyer can reasonably expect to continue.
- Normalize EBITDA and earnings
- Evaluate revenue and margin trends
- Identify risks and unusual or nonrecurring items
- Assess working capital and other transaction considerations
Understand What You’re Really Buying
A buy-side QofE gives strategic buyers an independent view of a target’s financial performance before they commit capital. It helps validate the earnings supporting the purchase price and uncover issues that could affect value, deal terms, or future performance.
- Validate the earnings behind the deal
- Test EBITDA adjustments and add-backs
- Identify financial and operational risks
- Inform valuation and negotiations
- Increase confidence in the investment
Know Your Numbers Before the Buyer Does
A sell-side QofE helps owners understand, substantiate, and strengthen the financial story behind their business before entering buyer diligence. By identifying potential issues early, sellers can address concerns proactively and enter negotiations from a position of greater confidence.
- Substantiate sustainable earnings and EBITDA
- Identify and address potential deal issues early
- Prepare for buyer diligence
- Reduce surprises and renegotiations
- Strengthen your position in the transaction
AEC Firms Aren’t Like Other Businesses
WIP, project margins, backlog, change orders, revenue recognition, retainage, and working capital can all influence the quality and sustainability of earnings. Our AEC expertise allows us to understand what’s behind the numbers and identify the issues that matter most in an AEC transaction.
- Understand project-level profitability and WIP
- Evaluate the quality of backlog and future revenue
- Assess project and customer concentration
- Identify AEC-specific earnings risks
- Connect financial performance to transaction value
Buy-Side
Buy-Side M&A: Diligence During the Deal
Kevin Kline, CPA. An insight-driven diligence roadmap covering tax structure, nexus, and cultural continuity.
Sell-Side
Sell-Side QoE:
Deal Maker or Deal Breaker?
Kevin Kline, CPA. Pre-market seller value, buyer risk mitigation, and project completion adjustments.
Webinar
Quality of Earnings in AEC: What Buyers & Sellers Need to Know
Learn how a QoE differs from a standard audit, what critical metrics buyers and sellers scrutinize, and how to prepare your firm in advance.
Featuring: Kevin Kline, CPA, and Hobson Hogan
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