Beyond the Standard Buy-Side Diligence

The Challenge

A private equity firm evaluating a fast-growing mental health provider needed more than a traditional quality of earnings (QoE) analysis. The target reported revenue on a cash receipts basis, with limited visibility into profitability by location or clinician. Compounding the challenge were billing practices unique to the industry “incident-to” billing under Medicare and delayed claims early in the year due to coverage resets.

These nuances weren’t well documented or explained by the company, creating risk around earnings quality, seasonality, and working capital. With exclusivity on the horizon, the client needed fast, actionable insights to inform valuation, support the investment thesis, and satisfy internal stakeholders.

Our Approach

We quickly engaged with target’s management to gather detailed billing and aging data and converted financials to an accrual basis, providing a clearer view of revenue timing and margin profile. We built a collections waterfall to model expected revenue recognition across periods and services, helping clarify historical performance.

Next, we performed margin analysis by location and clinician, uncovering significant variance in contribution margins. This insight proved essential to understanding where value was being generated and where it wasn’t, shaping the client’s go-forward strategy and staffing plan.

We also flagged critical seasonality and billing risks, including delays in Medicare claims at the start of each year that, if unadjusted, would appear as revenue drops. Our work helped normalize these patterns and ensured forecasts weren’t distorted. In parallel, we surfaced the target’s use of “incident-to” billing, enabling the client’s legal team to assess compliance risk and ensure no post-close surprises.

The Impact

Our findings gave the client the clarity and confidence to proceed. With a true picture of economics, normalized revenue, and unit-level profitability, they presented a compelling investment case to their committee and ultimately closed on terms aligned with the real value of the business.

By going beyond the typical QoE, we delivered not just diligence, but decision-ready insight that made the difference between buying a business and buying a story.