The need
A U.S. midstream oil and gas company had doubts about an acquisition it was closing. The initial firm that performed the quality of earnings (QoE) work appeared to have completed the work quickly and hastily, and the company wanted a secondary review.
How we added value
Given our extensive Big 4 audit experience, we started with a top-down, risk-based approach and although no red flags were noted within the revenue and receivables and other significant risk areas we noted an unusual amount had been spent on legal costs year-to-date. Upon digging further and after multiple denials for the legal expense detail from the acquisition target we noted the target had not disclosed highly material legal contingencies nor did it plan to prior to the closing date of the acquisition.
Results
Our client walked away from the acquisition and we were directly credited with the decision as a result of our QoE work and attention to detail.
Strategic risk review
This engagement underscored the importance of tailored diligence. In complex sectors like energy, nuanced risks often hide beyond standard revenue and margin checks—and that’s where we specialize.
Client
Oil & gas industry
Services
Quality of Earnings
Year
2024
Smarter deal decisions
The deal in question was valued at over $100M and represented a significant strategic expansion. Proceeding with undisclosed liabilities could have exposed our client to material legal and reputational risks.