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Quality of Earnings
A $100M acquisition, called off
A midstream operator did not trust the diligence it had already paid for. The second opinion cost the deal and saved the client.
SectorOil & gas, midstream
ServiceQuality of Earnings
Deal value$100M+
Year2024
The situation
A U.S. midstream oil and gas company was moving toward close on an acquisition valued at more than $100M. It already had a quality of earnings report in hand.
What it did not have was confidence in that report. The first firm had turned the work around quickly, and the deal team suspected the speed had come out of the scope. They asked us for a second review before signing.
What we did
We ran the review top-down and risk-first, starting from where a business of this shape is most likely to be carrying something undisclosed, rather than working up from transaction detail.
Legal cost spending surfaced early. The figures ran higher than the target's disclosed matters could account for. We asked for the detail behind them. The target declined to provide it.
We kept pulling.
What we found
Material legal contingencies the target had no intention of surfacing before close. These were obligations that would have transferred to our client on day one, sitting outside the revenue and margin checks a standard scope covers.
The outcome
The client walked away from the deal.The acquisition that does not close is rarely the one anyone writes about. This one kept a midstream operator from inheriting exposure it never agreed to buy, and it turned on a line item the first review had not chased.
Why it matters
A signed quality of earnings report and a clean deal are two different things. The first review met the standard scope. The risk sat outside it.
Nuanced risk tends to hide past the revenue and margin checks every provider runs. Finding it depends less on the checklist than on who is reading the file and whether they are senior enough to know when an answer is thin.
Second opinion on a deal in motion?
Bring us in before you sign. We will tell you what scope makes sense for the deal in front of you and how fast we can move.
