Underwriting companies with spiking earnings

by a searcher from University of Illinois at Urbana-Champaign

1 month ago

Looking at expanding through acquisition and have connected with a company who has prepared for selling by improving their margins in the last###-###-#### months. As a result, their TTM shows a 50% growth in earnings relative to their last tax return.

So my question is whether there are SBA programs that would allow a QoE or audit to verify the TTM earnings and we could underwrite a deal accordingly? Otherwise, are there conventional programs that could underwrite against the TTM?

Am hoping that this provides a path for others in similar positions.

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8 comments

searcher from University of Toronto

Normalizing earnings is a first step to any DCF type valuation. This is somewhat of a subjective process, however.

1 month ago | like reply | 0 likes

intermediary from The University of Chicago - Booth School of Business

As an M&A Intermediary, I generally stay away from such "managed profits". The odds are high that there is something behind the curtain that will either crater the deal on 11th hour or the buyer will suffer post-close.

1 month ago | like reply | 0 likes

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