A PE firm was in an accelerated process on a $180M software acquisition. The seller had set a 10-day exclusivity window – sign LOI within 10 days or lose the deal. The firm needed financial diligence completed before they could get comfortable enough to sign.
Their regular Big 4 diligence provider quoted $280,000 and 6 weeks. The exclusivity window was 10 days. The numbers didn't work. They called us on a Tuesday. We started Wednesday morning.
We agreed on a focused diligence scope built around the five questions that actually matter for a software acquisition at this size:
We built a complete Quality of Earnings model from the VDR documents: normalized EBITDA, revenue quality assessment, one-time items, and pro-forma adjustments. We analyzed 3 years of revenue by customer, product, and contract type – identifying that the top 3 customers represented 42% of ARR, two of whom had contracts renewing within 18 months.
We found $2.3M in revenue that the seller was booking on a cash basis that should have been deferred under ASC 606 – material enough to affect the purchase price negotiation. We also identified $1.8M in capitalized software costs that should have been expensed – an accounting policy issue the seller was using to inflate margins.
"The QoE work identified $4M in adjustments we would have missed. That paid for the engagement 100 times over before we even closed the deal."
The firm signed the LOI on day 8 of the 10-day window. The $4.1M in identified adjustments were negotiated into the purchase price. The deal closed six weeks later at a price $4.1M lower than the seller's initial ask. The firm saved $242,000 on diligence fees and an additional $4.1M on the purchase price.