How Quality of Earnings Can Drive Value To Your Manufacturing Enterprise
By Jerry Dentinger & Ryan McCaslin | BDO Transaction Advisory Services , a Partner of M&A Leadership Council
Dealmaking in the manufacturing industry is poised to accelerate in 2017, buoyed by investor optimism around proposed pro-growth economic policies. Despite the modest slowdown in volume last year, multiples and valuations stayed high going into 2017. Therefore, buyers remain laser-focused on understanding a target’s profitability model to justify the expensive prices they are paying. The due diligence process continues to be critical to making informed investment decisions and capturing value after closing.
As part of the due diligence process, buyers typically seek out a detailed analysis of a target’s Quality of Earnings (QofE). QofE analyses aren’t new, but attention continues to grow around Big Data and how to navigate the exponential increase in volume and variety of structured and unstructured data in a due diligence process. This development has added a new layer of complexity—demanding a near-forensic level of detail, further increasing the burden on sellers and raising buyers’ appetite for information. For small and mid-sized manufacturers, where QofE processes often start immediately after receiving a Letter of Intent (LOI), introducing another layer of unexpected complexity can add serious anxiety to the sale process.
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