November 18, 2024

B&A frequently performs quality of earnings (QoE) assessments for clients considering M&A transactions. Summaries of our work on two recent engagements are profiled below, demonstrating the importance of QoEs for differing reasons: while our work on one engagement validated the client's investment thesis, our other client walked away from the transaction based on our discoveries. These opposing outcomes were equally valuable for our clients.

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An investment fund assessing the opportunity to provide financing to support the merger of two sporting goods and outdoor equipment distributors retained B&A to conduct financial due diligence. We analyzed historical earnings for both companies, proforma combined revenues, and multiple projected operating synergies. Our conclusions were:

• Management’s projected post-merger cost savings were likely achievable;
• Historical earnings were accurate; and
• Financial accounting policies and procedures were in accordance with GAAP, and the accounting teams consistently adhered to such policies and procedures.

Outcome



Our analyses and report substantiated the companies’ results and managements’ representations, providing our client with confidence in its investment and underwriting thesis. The transaction is expected to close in Q4 2024. 

A startup healthcare technology and services provider retained B&A to evaluate a target acquisition’s reported earnings. Our analyses uncovered the following:

• The company’s management team and bookkeeper were inexperienced and unprepared for buyside diligence, resulting in untimely delays;
• The target company’s affiliated companies were not consolidated;
• Management had not identified separate non-recurring or one-time EBITDA adjustments by entity;
• Related party transactions had not been eliminated, resulting in overstated revenues and expenses; and
• Proposed EBITDA adjustments lacked supporting details.

Outcome

B&A attempted to assist the target company’s management team with these issues, however, they proved incapable of responding timely. We advised our client to reconsider the diligence time cycle due to incomplete data and other notable observations per the financial trends. Our client subsequently declined to proceed with the transaction..

NAFER presented its 2024 Lifetime Achievement Award to Jeff Brandlin at its Annual Conference in October. Jeff has been on NAFER's Board of Directors since 2013 and serves as its Treasurer.

NAFER (The National Association of Federal Equity Receivers) is the preeminent organization for federal equity receivers, their professionals, and others seeking to become involved in federal equity receivership work. NAFER is dedicated to providing excellent receivership education and networking opportunities and instilling confidence in those selecting NAFER receivers and their professionals.