The buyer's Quality of Earnings report rejected our two-hundred-thousand-dollar add-back for an enterprise price increase we instituted six months ago, claiming they only accept actual historical trailing numbers. How do we defend annualized run-rate pricing adjustments in our QoE to preserve our EBITDA multiple?

Question

Tyler Smith · Accepted Answer

Buy-side Quality of Earnings teams routinely strike mid-year pro forma price increases because their mandate is to verify cash collected, not theoretical projections. When a buyer values your business at an 8x multiple, every dollar removed from your trailing twelve-month adjusted EBITDA strips eight dollars off your enterprise valuation. You cannot win this argument with optimism; you must win it with empirical contract data.

To defend mid-year price adjustments, prepare a defensible proof pack for the QoE accountants:

- Show signed contract renewals or accepted master service agreements proving that the price increase is universal and contractually binding, not discretionary.
- Deliver a client cohort retention analysis tracking the trailing six months since the price hike took effect. Prove that customer churn did not spike and gross margin percentages held steady or expanded across your primary accounts.
- Run a reverse bridge reconciliation. Calculate the exact dollar difference between historical billings and pro forma run-rate revenue customer by customer. Show that cash collections in the most recent two quarters match the projected run-rate trajectory.
- Isolate any one-off contract concessions. If certain legacy customers received grandfathered pricing, explicitly exclude them from the run-rate adjustment to maintain credibility with the financial auditors.

When you present this documentation through a rigorous, audit-ready data room, you shift the debate from a speculative future projection to an established baseline. If the buyer still insists on cutting the run-rate add-back, introduce a short-term earnout or an escrow true-up mechanism tied solely to verifying that annualized revenue hit the target over the next two quarters.