3 Things To Do Before Hiring a QoE Firm
Before hiring a firm like Guardian to do a Quality of Earnings (QoE) for your deal, you should make sure you’re ready for that step. You’ll want to rule out a few deal-breakers—like if you’ll be able to get financing for the deal, whether there are any risks that are a definite no-go for you, or if you don’t have enough time for meaningful due diligence.
Make sure to take these steps ahead of time to get the most out of your due diligence process.
First, Send the Seller a Full Due Diligence Checklist
Get the ball rolling by sending the seller your full due diligence checklist. At a bare minimum, request monthly financials and tax returns. You want to ask for financials to see how quickly the seller can pull them and provide them to you. This tells you a lot about their reliability and commitment to the deal. Their taxes returns will reveal how little profit the company is reporting and paying taxes on. The lower the profit shown on taxes relative to the EBITDA or SDE in the CIM, the harder it will be for you to finance the deal. If the company’s profit reported on taxes is a quarter of the profit shown on the CIM, it will be tougher to finance than if this number is a half or three-quarters of the CIM profit. This step will rule out some immediate deal-breakers while helping you prepare for a QoE by receiving the documents you need.
Second, List Your Top 5 to 10 Risks
What five to ten factors, if true, would make you kill the deal? Sit down with the seller and discuss these issues. You may not know enough to evaluate what you’re hearing or the data to back up their answers yet. Just like a lawyer asks questions before they have all the solid information, you’ll be able to assess how honest the seller was about these issues once you can analyze the data thoroughly.
Third, Consider Your Timing
You don’t have endless time. As a self-funded searcher, you don’t want to spend until you’re certain. Unfortunately, the acquisitions environment doesn’t allow you to be fully sure. The first two steps will help you feel more comfortable. Consider how much time you have for diligence. Do you have 30 days? 90 days? If diligence takes 30 to 45 days, what is your drop-dead date to start the process? Do you have a provider lined up? Have you paid that provider?
The last thing you want to do is blow through your diligence time kicking tires. Then when you finally hire a QoE provider, you’re under the gun before they get out of the gate. That puts pressure on your deal. Good deals blow up, and bad deals fall through the cracks. In some cases, you may not even have time to kick the tires because the diligence timeline is so short at 20 to 30 days. You’ll be successful in the diligence process if you finish diligence in the timeline in the LOI while building trust with the seller and setting yourself up to close a good deal. Make sure you know your timeline and abide by it.
After you take these steps and are happy with where your deal stands, it’s time to hire your QoE expert. Vette your deal and make sure it’s truly the one you’ve been searching for. If you think you’re ready, let’s get started today.