The buy-side Quality of Earnings team is rejecting our EBITDA add-backs for historical AI R&D spend, claiming it is an ongoing operating expense rather than a one-time investment. How do we defend these capital-like investments to protect our multiple?

Question

Tyler Smith · Accepted Answer

The buy-side Quality of Earnings team will always try to categorize your proprietary technology investments as operating expenses to drag down your EBITDA. To protect your valuation, you must prove that your AI research and development spend was a discrete, capital-like investment designed to build a long-term asset, rather than an ongoing cost of daily operations. Under standard accounting guidelines and IVS 105, investments that create future economic benefits can be capitalized or treated as non-recurring adjustments for valuation purposes. You need to show that this development work had a clear start and end date, and that the resulting AI tool is now a finished asset that drives efficiency without requiring continuous R&D spend. In EOS®, we manage major initiatives as quarterly Rocks with clear, measurable outcomes. Present the project plans, milestones, and completed deliverables of your AI development Rocks to show the buyer that this was a structured, non-recurring strategic investment. When you provide clear documentation proving that these costs have ceased and the asset is fully functional, you can successfully defend your EBITDA add-backs and protect your enterprise multiple.