The buyer's Quality of Earnings firm is digging into our purchasing history and claiming that the volume-based vendor discounts and pricing rebates we secured over the last two years are temporary anomalies. They want to adjust our historical EBITDA downward, arguing these margins are not sustainable post-acquisition. How do we defend these operational efficiencies to preserve our valuation?

Question

Tyler Smith · Accepted Answer

To defend these margins, you must treat this as a process capability issue, not just a spreadsheet debate. Buyers discount margin improvements when they look like temporary luck or one-of negotiations. You must prove these savings are institutionalized through your operational system.

Start by presenting your V/TO® and your documented core processes. Show the buyer that your vendor management is a systematic, repeatable operation governed by a clear seat on your Accountability Chart. When you can demonstrate that cost containment is a permanent capability run by a leader who GWC™ (Gets, Wants, has Capacity to do) the role, the buyer realizes the efficiency is not an accident.

Next, pull the historical data from your weekly Level 10 Meeting™ archives. Show them the scorecard metrics tracking vendor performance, cost per unit, and rebate milestones over the last eight quarters. This data proves that your team actively manages these margins as a weekly discipline.

Finally, demonstrate that your volume-based discounts are secured through long-term supplier agreements, not handshake deals. Bring the contracts to the table alongside your forecasted procurement model to prove that the current volume levels are locked in for the foreseeable future. If the buyer still pushes back, suggest a temporary post-close adjustment mechanism where a portion of the purchase price is released once the business hits its procurement targets. This keeps the transaction moving forward without leaving money on the table.