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Don't think I've ever seen a "funny" adjustment, but I've seen plenty that are so blatantly ridiculous that they're funny. These are all from the same company, and they took so much offense to us disagreeing with them: Added back the salaries of 3 salespersons for their first 4-6 months until they brought enough sales to cover their salary. Add back for an advertising campaign because it wasn't as successful as they had hoped. Add back for SEO costs since they don't no longer need to b/c HomeDepot covers it somehow now. The largest adjustment was an add back to adjust for the exorbitant shipping costs they had been incurring to get their product in from China faster to meet up with a spike in demand, which made it so that they lost money on those sales -- of course they only want to adjust for the expense rather than the sales they wouldn't have gotten if they didn't expedite.

 

Work for a lower a lower middle market m&a advisory firm, I've seen seven figure owner comp that takes up more than half of EBITDA for a few companies, excluding "owner benefits"

 

Back in the 2010 timeframe I encountered an addback for "Deep Economic Recession," which more than doubled EBITDA. The argument was that if we weren't in the middle of an economic crisis, the company would be making twice as much money. Same guy wanted to get paid a multiple of cash flow PLUS total asset/NWC value.

CompBanker’s Career Guidance Services: https://www.rossettiadvisors.com/
 

I see weather and owner "comp/ benefits/ private jet" adjustments very often... the latter always seem to fall under "extraordinary non-recurring" definition even though weather events are recurring by nature.

One of the better ones I saw recently was an addback for increased volume from having factories running on holidays and weekends. Owner was very religious and observed a ton of holidays. That's great and all, but can that extra volume be sold?!

 

Not illegitimate in the sense that a PE or strategic wouldn't apply the addback but ridiculous in the sense that the owner was very frivolous in his spending. We added back flights, fancy hotel stays, dinners, etc. that he spend on his management team. Keep in mind that the company was international and in many cases the owner would fly management from HQ that was in a different country just for a brief conversation/ note taking before he would fly them back... As you could guess the company had a liquidity problem and was boarder line distressed.

 

I swear this is true.

Sell-side engagement on a negative cash flowing company. Our CIM doesn't show a single negative cash flow number throughout. Queue PE company coming in and putting forth a bid for a "turnaround" asset that is already turning a corner (supposedly). We get under LOI and make it a month into diligence when a partner literally says to us on a diligence call "Wait... (5 second pause) you aren't trending towards $xM of EBITDA?! You are still negative cash flow?!?!" after our client ceremoniously read out last three months performance. We were an entire fucking month under LOI at this point. This was like runrate, stabilized, pro forma, next two years performance we were showing lmao. The partner hops off the phone and calls my MD directly on his cell, which means only one thing to you folks familiar with that move haha. Most hilarious thing I've ever heard on a conference call though.

 

Not necessarily funny, but an interesting adjustment.

Looked at a deal ~4/5 years ago for a large retail chain in the midwest. In addition to tons of other things, they sell firearms and ammunition. They had to adjust historical numbers down because they sold so many firearms prior to Obama getting re-elected that it created this crazy spike in earnings.

 

Some off the top of my head:

  • A private hospital/clinic group adding back "opex per bed above market average opex per bed" because "obviously it should be capitalised as bed improvement". It was a quality-focused chain whose weekly price was much higher then comps precisely for this quality.

  • A financial institution adjusting EBITDA for N+1 and N+2 initiatives both on revenues and costs side. Therefore Adj EBITDA was practically the same as N+2 EBITDA, but wanted to be paid LTM trading multiples x Adj EBITDA. All bidders dropped but they IPO'ed at precisely that valuation. Incredible.

  • A well known luxury restaurant brand adjusted "image expenses", which in DD turned out to be hot models paid to eat there. Adjustment explanation: "Yes, because we only need them for 1-2 years after opening so that rich people come to spend money and impress them. After those 2 years the "hot models restaurant" image is established and we don't really need them anymore".

  • Already mentioned by other users, but in a c. 30m EBITDA company I have seen a 3.5m "Son of the owner credit card" adjustment.

  • Labs player: EBITDA adjusted for (i) synergies to be extracted from past acquisitions, (ii) execution of pipeline acquisitions (basically a random list of target with the same (low) multiple applied to all of them), (iii) synergies from pipeline acquisitions. EBITDA went from 1X to 2.8X due to adjustments.

  • Event agency doing brokerage activities (i.e. a large chunk of their business was to acquire bulk tickets for events and re-sell them): EVERY year they adjusted 1 event where they lost money calling it "one-off adjustment due to unexpected [bad weather/road blockage/default of headline singer/air traffic control strike/...]".

  • Not really a Sell Side adjustment but a funny Buy Side proposed adjustment by the Financial DD advisors: "xxx negative Adjustment to QoE to hire x people and create a tax division at the company, as now they don't declare anything and just wait for the tax authorities to send them the bill and a fine". There was also a positive adjustment for "Tax fine expected to be non-recurring once tax function is in place".

 

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