The Diligence Edge: How We Help PE Firms Move Fast Without Missing Risk

In lower middle market private equity, diligence can make or break a deal — not because the numbers don’t work, but because the process itself drags, disrupts trust, or gets in the way of momentum. The traditional diligence model — long timelines, dense reports, and tone-deaf communication — simply doesn’t fit deals under $100M.

At High Point Advisory Group, we approach diligence differently.

We specialize in fast, founder-friendly, and deal-preserving financial diligence that gives PE firms what they need to make smart decisions — without killing the relationship or losing time. Whether you’re evaluating a platform investment or a small bolt-on, we help you get to clarity quickly while keeping the deal on track.

What’s Different About Diligence in the Lower Middle Market?

Big firm QoE approaches are designed for $100M+ deals, where teams of analysts comb through every line item over 6–8 weeks. In the LMM, that pace doesn’t work — especially when the seller is a founder with limited documentation, no monthly close, and little tolerance for process.

Here’s what we see again and again:

• The seller doesn’t have clean financials — they have QuickBooks files and gut feel
• EBITDA includes unvetted add-backs and personal expenses
• Working capital is misunderstood or undefined
• The seller wants speed, but the buyer wants certainty
• Relationships start to strain under the weight of “review fatigue”

This is where deals start to fall apart — not because of fraud, but because no one is managing the tension between transparency and tact.

Our Approach: Practical, Fast, and Respectful of the Seller

We focus on three principles in every diligence engagement:

1. Speed Matters

In the LMM, you’re often one of several buyers. We move fast — typically completing a QoE Lite in 5–10 business days and a full QoE in under 3 weeks. That helps you keep the momentum and avoid deal fatigue.

2. Focus on What Matters

We tailor our scope to match deal size and complexity. You won’t get a bloated 90-page report full of academic analysis — just the key insights that drive valuation, structure, and confidence.

3. Preserve the Relationship

We’re tactful with sellers, especially founders who’ve never been through diligence before. We ask the right questions, explain the “why,” and communicate respectfully — all to protect your deal and reduce the risk of emotional fallout.

When to Use Full QoE vs. QoE Lite™

We offer two main diligence products based on deal size, lender requirements, and depth of review needed:

🟦 Full Quality of Earnings (QoE) Report

Best for:

• Lender-financed transactions
• Platform investments
• Deals with complex revenue models or multiple entities

Includes:

• Recast income statements
• Adjusted EBITDA with vetted add-backs
• Revenue and margin analysis
• Working capital assessment
• Net debt schedule
• Red flag risk commentary

✅ Bank-ready and LP-defensible
✅ Suitable for deals under $100M where lenders require rigor

🟦 QoE Lite™ Summary

Best for:

• Cash deals or deals without lender diligence requirements
• Smaller bolt-ons or sub-$5M acquisitions
• Speed-to-close transactions

Includes:

• Normalized financials
• Add-back review
• Red flag risk areas
• Working capital snapshot
• Focused diligence narrative (5–10 pages)

✅ Faster, lighter, lower-cost
✅ Often completed in under 10 business days

👉 Learn more about how our QoE Lite™ helps buyers get fast clarity without heavy overhead in our main overview post on working with PE firms.

EBITDA Normalization and Add-Back Validation: Where Risk Hides

In smaller deals, “adjusted EBITDA” is often a moving target. Sellers may include personal car leases, one-time legal fees, “market comp” adjustments for family employees, or discretionary spend that’s hard to validate.

Our role is to:

• Vet and quantify legitimate add-backs
• Identify recurring but non-obvious expenses
• Flag aggressive or unjustified adjustments
• Help you understand what “true earnings” look like

Example: In a recent diligence engagement for a med spa, the seller had inflated EBITDA by reallocating marketing and supply costs to a separate management company owned by the same operator. On paper, the target company showed 35% margins — but once we properly reallocated $300K in shared expenses, the true EBITDA margin was closer to 18%. That insight helped the buyer adjust valuation and prevent unrealistic growth assumptions post-close.

Working Capital: The Most Misunderstood Element in Small Deals

Working capital target setting is one of the most contentious (and confusing) aspects of closing a deal. Founders often don’t understand it, buyers often overlook it, and post-close surprises are common.

We help buyers:

• Analyze 12–24 months of trailing balance sheets
• Remove seasonal swings, non-operating items, or anomalies
• Establish a normalized working capital target based on cash-free, debt-free assumptions
• Explain the concept to sellers in simple, non-combative language

Our goal is to prevent disputes at close — or worse, cash shortfalls post-close — by grounding the target in operational reality.

Tactful Communication That Keeps Sellers Engaged

One of the biggest risks in LMM deals isn’t financial — it’s emotional. Founders get frustrated, overwhelmed, or feel like the process is “trying to kill the deal.” If they lose trust, deals unravel.

We communicate with sellers (and their advisors) in a collaborative, respectful tone. That includes:

• Clear context for requests (“Here’s why we’re asking for this”)
• Minimal back-and-forth with consolidated requests
• Flexibility on format — we work with what they have
• Calm, solutions-oriented dialogue when issues come up

This keeps the process moving — and preserves the goodwill that will carry through to the transition.

Post-Diligence Support: Taking Insights Into Execution

Unlike most QoE firms, we don’t disappear after the report.

Many buyers ask us to stay on and help:

• Build the initial 13-week cash flow forecast
• Stand up a basic reporting package
• Lead the finance function during the transition period
• Execute cleanup tasks from the diligence phase (e.g. payroll corrections, expense reclassification)

That continuity helps turn diligence findings into real operational improvements — and prevents your internal team from having to triage the mess.

👉 This is part of our broader offering described in our full post on advisory support for PE firms.

When to Call Us

We’re most helpful when:

• You’ve identified a target and want to move fast
• You’re preparing an IOI or LOI and need preliminary insight
• You need a diligence partner who knows how to handle founders
• You’ve had bad experiences with slow, bloated diligence in the past
• You want a partner who can stay involved post-close if needed

We work with independent sponsors, family offices, search funds, and established PE firms — adapting our scope and style to fit the deal.

Let’s De-Risk Without Losing the Deal

Diligence should protect you, not slow you down. It should build clarity, not erode trust. And it should uncover risk without unraveling the relationship.

That’s what we do at High Point Advisory Group.

If you’ve got a deal in motion — or are preparing to launch a new search — let’s talk. We’ll give you fast, focused diligence that helps you move with confidence and preserve the opportunity in front of you.

👉 Contact us today to schedule a 15-minute discovery call.

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