CFOx recently provided Quality of Earnings (QoE) and transaction advisory services to a private equity-backed food service company in connection with an add-on acquisition.
Our client, a Greek life catering company, has been expanding through strategic acquisitions to better serve fraternity, sorority, and college campus partners across the country. With year-end approaching and an aggressive transaction timeline in place, the client needed to complete the acquisition before the close of the calendar year. Our team mobilized quickly to help keep the deal on track and deliver the analysis needed to support an informed decision.
During the engagement, CFOx evaluated the target company’s accounting systems, financial reporting practices, operations, and accounting policies. In addition to performing a comprehensive QoE analysis, our Transaction Services team advised on net working capital (NWC), net debt, and cash proof procedures to verify the accuracy of historical cash activity and financial reporting.
One of the key areas of focus involved management’s proposed EBITDA adjustments. Management and the sell-side advisory team presented approximately $1.2 million of add-backs, representing nearly 50% of reported EBITDA. Through detailed diligence, CFOx identified several proposed adjustments that did not align with standard QoE adjustment criteria. Our team refined the methodology behind multiple adjustments and challenged assumptions where appropriate, resulting in a more accurate representation of the company’s earnings profile.
CFOx also uncovered a significant issue related to accrued payroll. Management’s calculation did not fully account for compensation amounts already recorded within accounts payable and failed to reflect the impact of certain compensation-related EBITDA adjustments. By identifying and correcting these items, our team helped improve the accuracy of both the earnings analysis and balance sheet presentation.
On the working capital side, CFOx made several adjustments to bring the balance sheet into closer alignment with GAAP and to more fairly reflect the assets and liabilities that would transfer as part of the transaction. We also prepared a detailed net debt analysis to help ensure our client received appropriate treatment for debt-like obligations and other liabilities that should remain the responsibility of the seller at closing.
The diligence process surfaced several critical findings related to earnings quality, accrued payroll, net working capital, and net debt. With these insights identified early, management and its private equity sponsor were able to evaluate the opportunity from a position of knowledge rather than assumption, make informed decisions throughout negotiations, and ultimately complete the acquisition with greater confidence in the transaction’s financial fundamentals.
Engaging with CFOx can save you time and frustration by identifying issues early on in the buying process. If you would like to learn more about our Transaction Services, please reach out via email (info@cfoxadvisory.com) or schedule a call directly on our Contact Us page.
CFO Services Provided:
- Quality of Earnings (QoE) Analysis
- Due Diligence on Targets
