What’s Wrong With Being an EBITDA Advocate?

A different view of what the seller’s diligence advisor is for

Ask most large accounting firms what a sell-side quality of earnings report is, and they will describe an objective, independent analysis. The advisor sits above the transaction, evaluates the numbers without a point of view, and reports what it finds. Advocacy, in that model, is a compromise of the work.

We see the job differently. When Buxbaum performs a sell-side QoE, our role is to arrive at the highest adjusted EBITDA that is both credible and fully defensible. We are the seller’s EBITDA advocate and that’s the role we believe a QoE specialist should play.

Where the Objectivity Paradigm Comes From

The traditional posture is not arbitrary. Large firms built their QoE practices out of audit, and audit culture is built on independence. Their independence rules, their liability posture, and their client roster all push toward a report that reads like a neutral finding. That produces a competent, careful document, but not one that is looking out for the seller, the client. We believe otherwise. We believe in looking out for the seller by advocating on their behalf.

The Seller Already Has an Objective Party: the Buyer

Here is the part the objectivity paradigm gets wrong. A sale process already contains a skeptical, well-resourced, fully independent review of the seller’s earnings. It is called buy-side diligence, and the buyer pays for it. Their advisors will challenge every adjustment, test every assumption, and push normalized EBITDA as low as the evidence allows, because a lower number is a lower price for their client.

If the seller’s own advisor also approaches the numbers as a neutral referee, the seller has no one whose job is to push the other way. The result is a negotiation with an advocate on one side and a reporter on the other. The buyer’s team defines the frame, and the seller’s report confirms it.

Our view is that a sell-side engagement should mirror the buy-side one. The buyer has a team searching for reasons the earnings are lower. The seller should have a team searching, with the same energy and the same standard of evidence, for reasons they are higher.

Our Job Is the EBITDA. The Banker’s Job Is the Multiple.

Purchase price in a middle-market transaction is, in the end, two numbers multiplied together. The investment banker owns one of them. Running a competitive process, positioning the company, creating tension among bidders, and negotiating structure are how the banker earns the multiple.

We own the other one. Every dollar of defensible adjusted EBITDA we identify and document is worth the multiple in enterprise value. At 8x, a $200,000 adjustment is $1.6 million. At 10x it is $2 million. No other workstream in a sale process has that direct a relationship to the check the owner receives at closing, which is why we think it deserves an advocate rather than an observer.

The two roles reinforce each other. A banker running a strong process with a soft EBITDA number is negotiating up from a low base. A banker with a fully developed, defended EBITDA number and a clean databook is negotiating from strength on both variables.

What Advocacy Means, and What It Does Not

Being an EBITDA advocate does not mean inflating earnings. An aggressive add-back that a buyer rejects costs more than it was ever worth, because it puts every other adjustment under suspicion and signals that management’s numbers cannot be trusted. Credibility is the asset; advocacy without it is worthless.

What it means is a change in mindset from having a neutral approach to being a proactive advocate fighting for their client:

• Going beyond the obvious add-backs. Owner compensation and one-time legal fees are the easy ones. The harder ones take investigation: related-party leases above or below market, personal expenses spread across dozens of accounts, discontinued product lines still carrying cost, severance from a reorganization that is genuinely finished, pricing actions that are contracted but not yet reflected in a full year of results.
• Testing accounting policy elections. Cash-to-accrual conversion, revenue recognition under ASC 606, inventory costing, and capitalization thresholds all involve judgment. Where a defensible alternative produces higher sustainable earnings, we make the case for it and document why it is the better reflection of the business.
• Building pro forma and run-rate adjustments the buyer will actually accept. A new contract, a completed cost reduction, or an acquired business needs to be presented with the support that turns it from a seller’s assertion into a number the buyer’s team can tie out.
• Killing the weak ones ourselves. Part of advocacy is telling the owner which adjustments will not survive and taking them out before a buyer does. A shorter list of bulletproof adjustments is worth more than a longer list with three soft spots.

The test for every adjustment is the same: would we be comfortable defending it, with the support in hand, across the table from the buyer’s diligence team? If yes, it belongs in the number. If no, it comes out.

Why This Is Consistent with Credibility, Not Opposed to It

The concern with advocacy is that it compromises the report’s reliability. In our experience the opposite is true. A report that has already been through an adversarial internal review, where every adjustment was pressure-tested by people who wanted it to survive and knew what it would take, arrives at diligence better supported than one assembled by an analyst with no stake in the outcome.

Buyers know the difference. What damages a seller’s credibility is not a well-argued adjustment. It is an unsupported one, an inconsistent one, or a number that changes between the management presentation and the data room. Advocacy done properly eliminates those, because the advocate cannot afford them.

Why This Fits How We Work Anyway

For clients whose accounting we already run, advocacy starts long before a transaction. Add-backs are tagged the month they occur. Related-party arrangements are documented when they are set up. Accounting policies are chosen with an eye to how a buyer will read them. Reporting flows from connected systems, so the schedules that support each adjustment exist as a matter of course rather than being reconstructed under a deadline.

That is what staying deal-ready means in practice: not just clean books, but books where the sustainable earnings of the business have already been identified, supported, and are ready to be defended on the day the process begins.

The Bottom Line

A seller does not need a second skeptic. The buyer supplies that. What a seller needs is an advisor whose job is to find every dollar of sustainable earnings the business actually generates, prove it to a buyer’s standard, and hand the banker the strongest possible number to take to market.

That is how we define a sell-side QoE. If you are considering a transaction and want to know what your EBITDA looks like with an advocate behind it, let’s talk about where your financials stand today.