A QoE analysis dissects reported earnings to answer three questions: Are the revenues real and recurring? Are the costs normalized and complete? Is the EBITDA that would remain under new ownership genuinely achievable? It goes beyond audit — where the question is 'did this happen?' — to commercial interrogation of whether it will keep happening. QoE advisors interview management, review customer contracts, test revenue attribution, and challenge add-back documentation.
The core output is an adjusted EBITDA bridge: starting from reported EBITDA, adding back legitimate one-off items, deducting non-recurring revenues, and adjusting for run-rate changes (annualizing new contracts, removing lapsed ones). This normalized EBITDA is the figure on which valuation multiples are applied. A 10% reduction in normalized EBITDA at a 9× multiple is a 90% multiple reduction in enterprise value.
Sell-side QoE (commissioned by the seller, delivered before process launch) has become standard practice in competitive mid-market processes. It allows sellers to control the narrative, document add-backs with evidence before buyers challenge them, and present a consistent, auditor-validated EBITDA to all bidders simultaneously — compressing process time and reducing re-trading risk. VBP systematically recommends sell-side QoE for any business with EBITDA above €1m targeting a competitive sale process.
QoE EBITDA walkforward
Reported EBITDA: €3.2m. Add: one-off restructuring costs €250k. Add: above-market founder salary €180k. Add: non-recurring legal settlement €90k. Less: COVID emergency revenue not repeatable (−€200k). Less: contract expiring at year-end (−€300k). QoE-adjusted EBITDA: €3.22m. At 9× multiple: €29m EV — virtually unchanged from reported. At 8× (if QoE found issues): €25.6m — a €3.4m swing.
Frequently asked questions
What does a Quality of Earnings review cost, and is it worth it?
For a business with €2–10m EBITDA, a QoE review typically costs €50–120k from a specialist accounting firm. At a 9× multiple, every €100k of normalized EBITDA saved from buyer challenge is €900k of enterprise value. The ROI on a clean QoE that prevents a €500k EBITDA reduction in diligence is therefore approximately 4–8× the cost.
Who commissions the QoE in a typical M&A process?
In a buy-side process, the buyer commissions QoE from their own advisors (Big 4 or specialist boutique) at the buyer's cost, after signing an LOI. In a sell-side process with VDD (vendor due diligence), the seller commissions QoE pre-launch and makes the report available to all buyers — compressing diligence timelines and reducing information asymmetry.
What are the most common QoE findings that reduce valuation?
In order of frequency: unsubstantiated add-backs (costs claimed as one-off that appear every year), revenue recognition issues (accelerated billing, percentage-of-completion disputes), customer concentration risk (revenue quality depends on one or two relationships at risk), below-market management costs (founder drawing below market comp, creating a real cost that doesn't show in EBITDA), and seasonal adjustments.