PE Diligence: The $1.2M EBITDA Reality Check
A target’s $4.0M “EBITDA” unraveled to $2.8M—and then to $1.2M after concentration, DSO, and CapEx requirements.
Challenge
Valuation creep based on optimistic adjustments and CAT tailwinds masked real sustainability risks.
Approach
- Normalized EBITDA including AR/DSO adjustments
- Flagged 72% revenue concentration in two GCs
- Quantified systems CapEx required in first 6–12 months
Outcome
- Repriced deal with earnout tied to diversification and cash conversion
- Integration plan de‑risked before close
- Saved millions by preventing overpayment