We have had the busiest year in our firm’s history performing Quality of Earnings (Q of E) services. We have worked for Private Equity Firms, Search Funds, sellers, and businesses looking to raise capital. Certainly, the level of activity in the market has increased. In addition to that I think that the market is favoring the segment we work in- Middle Market. Until last year most buyers demanded 2-3 years of audited financials before considering a target. Now they are willing to look at targets whose books might be a bit messy. They are relying more and more on the Q of E report. Of course, this makes sense. Investors want to ensure that the revenue, EBITDA and cashflows are dependable. An audit does not provide that assurance, a Q of E report does a much better job. Additionally, buyers don’t want to wait around while the audits are completed. As they wait other contenders could emerge and steal the deal.
We shine in situations such as this. Anyone can perform diligence on clean books. We get creative when the going gets tough. We work with the buyers to create diligence procedures which provide some of the assurances which are provided by an audit. For example, we might audit cash, accounts payable, and perform other cutoff procedures to ensure that the EBITDA is properly stated. The banks appear to be on the same page as well. They have taken to performing their own procedures to gain additional comfort. While we do our work, we keep the bankers informed which makes the financing much easier. Central to our success are the relationships we form with the sellers and their accounting teams. We are very sensitive to the fact that we represent the buyers and we must be gentle even as we are trying to move at a high speed.
For a firm in offices in Pasadena, CA and Ontario, CA we certainly have reach. Our work has taken us to Long Island, NY; Atlanta, GA; Ozark, MO; Denver, CO; Dallas, TX; Arlington, TX; Santa Cruz, CA; El Monte, CA, Marina Del Rey, CA; amongst other places.