Adjusted EBITDA — Pre-Transaction

Adjusted EBITDA is the number the business is being valued on. It’s also the number the buyer’s DD team will spend the most time challenging. Every add-back in the management deck — founder compensation, one-off restructuring, exited product lines, COVID effects, accounting noise — will be tested for defensibility.

The version in the IM was put together at speed. Some add-backs are clearly defensible. Some are arguable. Some are aggressive enough that the buyer will use them as a wedge to drop the multiple. Without a rebuild, the management team walks into DD without knowing which of their own numbers will survive.

And the buyer has experience. Their DD team has done this hundreds of times. They know which add-back categories get accepted and which ones get challenged. The management team is doing it for the first or second time.

A rebuilt adjusted EBITDA, every line documented to the standard a buyer’s QofE process will require.

We work bottom-up from the audited financials. Each proposed add-back is categorised (truly non-recurring, founder-related, exited business, accounting normalisation, etc.) and stress-tested against how buyer-side DD typically treats that category. Aggressive add-backs are flagged honestly — either they’re defensible and we build the documentation to defend them, or they’re not and the management team needs to know that before the buyer raises it.

The output is two things. First, a defensible adjusted EBITDA number with documentation behind every line. Second, a written view on the likely challenges — which add-backs the buyer will accept, which they’ll push back on, and how to respond.

Where the underlying P&L itself needs adjustment (revenue recognition issues, expense classification, working capital normalisation), we surface those too.

An adjusted EBITDA number the management team can defend, with the documentation already prepared.

Honest visibility on the weak points. The add-backs that won’t survive challenge are identified before the buyer raises them — so the management team can choose whether to drop them, defend them, or price them into expectations.

A faster, less contested QofE. The buyer’s DD team will still do their work, but they’re working from a fact base that’s been built to their standard.

Valuation protected at the most important number in the deal.