When the QoE Finds Problems: How to Renegotiate, Restructure, or Walk Away

Most QoE reports find something. That's the point.

The question isn't whether your quality of earnings report will surface issues — it's what you do with them. Buyers who understand how to use QoE findings as a negotiating tool close better deals. Buyers who panic, or who ignore the findings entirely, end up overpaying or walking away from deals they could have saved.

Here's how to handle the three most common outcomes: price adjustment, deal restructure, and walking away.

What "Finding Something" Actually Means

Before getting into strategy: understand that QoE findings exist on a spectrum.

At one end, findings are minor — a few unsupported add-backs, slightly aggressive revenue recognition, working capital that's lower than the seller estimated. The deal reprices by 5–10% and closes without drama.

At the other end, findings are material — revenue that isn't real, liabilities the seller didn't disclose, normalized EBITDA that's 40% below what was represented. These deals either restructure significantly or fall apart.

Most deals land somewhere in the middle. The seller's adjusted EBITDA was $950K. The QoE concludes $780K. That $170K gap represents $500K–$850K in purchase price depending on the multiple. The deal can still close — at a different price.

Outcome 1: Price Renegotiation

The most common outcome. The QoE finds that normalized EBITDA is lower than represented, and the purchase price should come down to reflect it.

How to approach the conversation:

Don't present the QoE findings as an accusation. The seller didn't necessarily mislead you — brokers routinely push add-backs to the aggressive end, and the QoE's job is to independently verify them. Frame it as: the independent analysis concluded X, which changes the earnings basis for valuation.

Come in with a specific, documented ask. Not "the QoE found problems, so we want a lower price" — but "the QoE identified $190K in adjustments that aren't supportable, which reduces normalized EBITDA to $760K. At the same 4x multiple, the price adjusts to $3.04M."

Bring the schedule. Walk through each adjustment line by line. This does two things: it forces the negotiation to be specific rather than emotional, and it gives the seller a chance to respond with additional documentation if they have it. Sometimes sellers can support an add-back with records they didn't initially provide.

What to expect from the seller: - They'll push back on 30–50% of the adjustments. Some pushback is legitimate — you should update the analysis if they provide good documentation. They'll try to negotiate a partial concession on ambiguous items rather than accepting the full reduction. That's reasonable. In most cases, sellers will accept a repricing rather than lose the deal entirely.

For sellers who won't move at all: use the working capital peg. If the seller won't reprice on EBITDA, there's often room to tighten the working capital peg, add escrow holdbacks, or adjust the earnout to protect yourself on the downside.

Outcome 2: Deal Restructure

When the QoE finds more than just a valuation gap — when it surfaces specific risks that can't be resolved with a lower number — a deal restructure is often the right answer.

Common restructuring tools:

Earnout. A portion of the purchase price is deferred and paid only if the business hits specified performance targets post-close. If the QoE finds that 25% of revenue is concentrated in one customer who hasn't signed a renewal, an earnout that ties $400K of the price to that customer's revenue in year one is a clean solution. The seller gets full price if they're right. You're protected if they're wrong.

Escrow holdback. A portion of the purchase price (typically 5–15%) is held in escrow after close, available to cover indemnification claims from the seller's reps and warranties. If the QoE identified potential sales tax exposure or environmental risk that couldn't be quantified, an escrow gives you a funded pool to draw from if the liability materializes.

Seller financing. If the QoE raises questions about future performance, asking the seller to hold a note for a portion of the price aligns their incentives with yours. A seller who is confident in their numbers will generally accept seller financing. One who knows the business is deteriorating will resist it.

Price allocation adjustments. In an asset deal, how the purchase price is allocated between asset classes affects your tax position and the seller's. Sometimes a deal that doesn't work at $3.5M works at $3.3M with a different allocation — because one structure generates more tax benefit for the buyer.

Outcome 3: Walking Away

Sometimes the right answer is to not buy the business. This is underutilized.

Buyers — especially first-time buyers who have been searching for 12–18 months — have enormous psychological resistance to walking away from a deal they've invested time and money in. The sunk cost fallacy is real. You've spent $20K on QoE, $8K on legal, and four months of your life. It's extremely hard to write that off.

Write it off anyway if the fundamentals don't work.

Signs that a deal is not worth saving:

Earnings that aren't real. Revenue recognized before delivery, customer deposits counted as revenue, related-party transactions inflating the top line. If the core earnings are fabricated rather than just aggressive, no restructure makes the deal safe.

Undisclosed liabilities that can't be sized. Environmental contamination. Pending litigation the seller didn't mention. Employment claims. Some liabilities can be indemnified — but if you can't size them and the seller won't escrow enough to cover the worst case, the risk isn't manageable.

Key-person risk with no transition plan. If 70% of customer revenue is personally tied to the seller, and the seller refuses to commit to any meaningful transition period or non-compete, you're buying a business that may not exist in its current form within 12 months of close.

A pattern of misrepresentation. One unsupported add-back is sloppy diligence. Five unsupported add-backs across revenue, compensation, and one-time items — combined with a seller who fights every finding — is a character issue. You'll be dealing with this person through reps and warranties, earnout calculations, and transition support. Think hard about whether you trust them.

How to Preserve the Relationship While Renegotiating

The goal is not to win the negotiation. The goal is to get to a price and structure that works for both sides.

A few principles that help:

Come with the QoE report, not just your conclusions. Handing the seller a 50-page analysis is harder to argue with than a number you made up. The findings are independent. You didn't invent them.

Be specific about what you need. "The price needs to come down" is a position. "The price needs to reflect a $760K normalized EBITDA basis — here's the math" is a specific, defensible request.

Give the seller room to respond. Set a deadline for their response to the findings — 5–7 business days is reasonable. That gives them time to consult their advisor, pull additional documentation, and come back with a counter rather than a reactive rejection.

Separate the person from the numbers. Most sellers are not trying to defraud you. They've built a business over 15 years, they're emotionally attached to it, and they believe it's worth what the broker told them. Treat the QoE findings as a shared factual basis, not an accusation.

A Real Example

We were engaged on a $6.5M acquisition of a home services company. The seller's package showed $1.3M in adjusted EBITDA. Our QoE concluded $940K, a $360K gap that, at the same 5x multiple, took the implied value from $6.5M to just under $5M.

The biggest items: $180K in owner compensation. The seller's salary on the books was $90K, and the broker added all of it back as discretionary. But the owner was effectively the general manager, running sales, operations, and the key customer relationships. A new owner would have to replace him with a GM at roughly $180K all-in. Between disallowing the add-back and recognizing the true cost of management, that was a $180K reduction. On top of that, $95K in personal vehicle and travel expenses with no supporting documentation, and $85K in revenue recognized in Q4 of one year for work that wasn't completed until Q1 of the next.

The seller pushed back hard. We walked through the schedule line by line. He accepted the revenue timing adjustment in full, and produced documentation supporting about half the vehicle and travel costs, so we allowed $47K of that back. Compensation was the sticking point. He argued the buyer intended to run the business himself and wouldn't need a full GM, so we landed on a reduced management cost of about $90K rather than the full $180K.

That brought adjusted EBITDA to roughly $1.08M. The deal closed at $5.4M with $600K in seller financing. Both parties got what they needed. The seller got a fair price for a real business. The buyer got a price that reflected the actual earnings.

That's what the QoE process is for.

If you're approaching LOI and want to understand how Bedrock structures its findings and supports renegotiation, reach out here.