So I have been wondering what's the purpose of QOE? I have encountered a number of them during my limited full time working 2 months, can someone explain what are those and what's the purpose of those? From my experience, we are just dealing with a few accountants and talk about EBITDA, but I don't really understand what are we trying to get out of those talks and what's the ultimate goal there or out of these kind of analysis?
Thanks,
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I've used sell-side QoE's a few times so far.
It's really to give buyers some comfort around the numbers you're presenting. Usually big parts of QoE include getting the adjusted EBITDA number and making sure the adjustments are legit versus. the bankers trying to get the highest number possible.
I see, thanks, but what's the difference between QOE and audited financials then? Isn't audited financials good enough to present to buyers? And if so, why do we need QOEs? What's the difference?
For instance, one deal I am working on right now already has 2015, 2016 and 1Q 2017 audited financials, but the client is currently in a process of doing QOE with accountants, so I guess what I feel confused about is that don't they already have audited EBITDA # for historicals 2015 & 2016 & 1Q 2017? Is QOE trying to get their LTM EBITDA or what?
You've got to remember a QoE will provide commentary on almost all line-items and operations in a somewhat favorable manner. This is not to say that QoE's are going to hide weaker aspects of the asset you're selling, but it definitely allows the seller's management team and bankers to sit down with PwC, Deloitte or whatever (branding is key) and provide detailed rationale on the whys and hows of the business. Audited statements may not have the branding needed and are generally more unbiased.
Note that the bias is inherent in my opinion given the economics for the accounting firm doing the report - they get paid a lot more in fees for doing Q&A etc the more bids the bankers are able to solicit using their report.
Ignore.
QOE means "quality of earnings" - the report is inherently focused on determining the true earnings of a company, generally through ebitda. An audit doesn't concern ebitda in any regard.
Generally they find the biggest issues with things like non-cash earnings, expense accruals that are insufficient for a company of current or expected size, GAAP vs cash expenses (ie rent)
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