Quality of Earnings for Private Equity

“I’ve seen how a QoE analysis can bring clarity in different ways, and how good quality of earnings services can make or break the deal process.

Here are just a few of the real-world examples from our recent engagements.

 When Time Is the Constraint

Time = money. Especially in M&A.

Late last year we saw how tight those timelines can be. Right before Thanksgiving, a prospect reached out with a challenge: they needed a Quality of Earnings report completed before the holiday; only a couple of weeks away.

We moved fast. From the initial call to client acceptance, signed engagement letter, NDA, and onboarding took less than 18 hours (and I’m not talking ‘business’ hours!). Work on the engagement began the very next day. Because we have a focused QoE team, we were able to prioritize the project and deliver the report in time for the client’s deadline.

The deal stayed on track.

What started as stress quickly turned into relief. Give every client the feeling that they are your only client. It goes a long way.

What’s worth emphasizing here is not just the speed, but the structure behind it. Moving quickly in M&A is only valuable if the work holds up under scrutiny. Deadlines don’t change the expectations around accuracy, defensibility, or depth of analysis. The ability to accelerate without cutting corners comes from having a team and process built specifically for this kind of work.

In situations like this, responsiveness isn’t just good service. It directly impacts whether a deal progresses or stalls.

When Walking Away Is the Right Outcome

I once had a realtor tell me that home inspectors are “deal killers,” and dread that part of the home-buying process. But if a home inspector uncovers major structural issues or hidden problems, most buyers would rather walk away than move into a house that turns into a financial nightmare.

Quality of Earnings/Financial due diligence reports can play a similar role in business transactions. A CPA firm is your “home inspector”.

On one deal, we were asked to perform a QoE review for a potential acquisition. As we worked through the analysis, we identified several significant red flags. The findings raised serious concerns about the long-term viability of the business, and ultimately the buyer chose to walk away from the deal.

No one enjoys being the bearer of bad news. But about a year later, that same client reached out again for help with another opportunity. The first thing they said was:

“Thank you for killing my last deal.”

Our analysis was accurate and had our client moved forward with the last acquisition, they likely would have absorbed the losses themselves.

There’s an instinct in M&A to measure success by closed deals. But experienced investors know that discipline is just as important as execution. Walking away from a deal (especially after time, effort, and capital have already been invested in getting to that stage) is difficult. It requires confidence in the analysis and trust in the process.

So yes, sometimes Quality of Earnings reports can be “deal killers.” But more importantly, they help ensure that investors make informed decisions and avoid costly mistakes; sometimes the best outcome in a deal is knowing when not to do it.

When the Numbers Tell a Different Story

If you’re negotiating an acquisition based solely on the seller’s numbers, you’re negotiating blind.

I’ve explained how Quality of Earnings (QoE) reports can sometimes “kill” deals (and why that’s often a good thing). But just as often, QoE reports don’t kill deals at all. Instead, they help buyers negotiate smarter.

In one engagement, our team completed a standard QoE review of historical earnings. No major red flags that would kill the deal – fantastic!

But our team has a tendency to go above and beyond, and as we dug deeper, we noticed something else in the valuation and multiple determination. The seller’s projected growth assumptions didn’t align with their actual orders, market conditions and operational capacity. When we pressure-tested the projections against realistic data, the growth story didn’t hold up the same way. The seller agreed to change the multiple.

For our client, that adjustment alone covered the cost of the QoE engagement and then some.

This is where a lot of QoE and transaction advisory work quietly creates the most value. Rather than dramatic ‘deal killing findings’ you pressure-testing assumptions that would otherwise go unchallenged. Projections, growth narratives, and valuation multiples are often built on ‘best-case’ scenarios.

By grounding those projections in actual operating data, market conditions, and capacity constraints, the conversation shifts. It becomes less about what could happen and more about what is likely to happen. That distinction is where negotiation leverage is created.

The Common Thread

Across all three of these situations, the outcome was different.

One deal stayed on track because of speed and execution.
One deal was avoided entirely because of identified risk.
One deal became more favorable through deeper analysis.

But the role of QoE in each case was the same: it replaced uncertainty with data-backed clarity.” - Kateryna Kudrenko