EBITDA Add-backs Buyers Accept — and Reject
Add-backs are where seller optimism meets buyer skepticism. In a light QoE review, every adjustment to reported EBITDA is tested against one question: can you prove it? Documentation — not narrative — decides what survives.
Adjustments that typically hold up
- One-off, documented items: litigation settlements, restructuring charges, or asset write-offs with invoices and board notes.
- Owner compensation normalization: market-rate salary substitution supported by comparables, not round numbers.
- Related-party items: rent or salaries paid to group entities at non-market terms, clearly evidenced.
Adjustments buyers strike out
- “Synergies” and projected savings — these belong in the business case, not historical EBITDA.
- Recurring costs relabeled as discretionary without evidence of discontinuation.
- Rounding errors compounding in the seller's favor — small unsupported add-backs erode credibility for the large ones.
Revenue quality matters too
A QoE isn't only about costs. Revenue recognition timing, cost allocations, and customer concentration all shape sustainable EBITDA. A customer that is 40% of revenue changes the multiple conversation before any add-back does.
Practical rule
If an add-back cannot be tied to a source document within minutes, treat it as unsupportable. Our FDD workstreams test each adjustment exactly that way — see Financial Due Diligence.