QUALITY OF EARNINGS - IS IT ACTUALLY NECESSARY?
I am under LOI on a $10mm purchase price deal. I have four months to complete diligence.
I know "best practice" in the search fund community is to complete a QofE. That said, all advisors that I'm working with on my search (my lawyer, buyside banker, etc.) have suggested that a QofE would be a waste of money for this deal.
I do not want to re-trade this deal - so I see no value in the QofE for those purposes. That said, a QofE would give me a lot of comfort in closing the transaction and stepping into operate the business. The company is a small manufacturing operation ($10.5mm in sales; $2mm in EBITDA). The company has used a very small CPA firm throughout it's history, and the financial records are not pristine - so there would be some comfort in getting the numbers checked. I believe the owner is an honorable man, and I do not believe there are any skeletons in the closet intentionally being hidden.
So my question: what are the real benefits to getting a QofE done at this point in time? Thank you for any guidance and perspective