The Evolving Quality of Earnings Process in Consumer and Multi-Unit M&A

Navigating Increased Scrutiny and Data-Driven Diligence

The M&A market for consumer and multi-unit businesses has always required a deep understanding of operational nuances, franchise structures and the ever-changing consumer landscape. However, in today’s deal environment, the quality of earnings (QofE) process has evolved significantly. With sustained elevated interest rates, ongoing margin pressures and regulatory uncertainty, investors and lenders are demanding a more rigorous and data-driven approach to diligence.

At Kroll, we are seeing a shift in how buyers, private equity firms and lenders evaluate transactions in these industries. Traditional financial diligence remains critical, but there is now an expectation of more sophisticated data analytics, detailed unit-level performance assessments, and an enhanced focus on sustainability and technology-driven efficiencies. As the consumer industry continues to be shaped by macroeconomic pressures and changing customer behaviors, a modernized QofE process is essential for successful deal execution.

The Shift Toward More Granular Analysis

Historically, QofE reports focused primarily on verifying earnings before interest, taxes, depreciation, and amortization (EBITDA); identifying normalizing adjustments; and ensuring revenue recognition policies were sound. Today, diligence must go deeper—especially in multi-unit businesses where performance can vary widely by location, franchise structure and market conditions.

The Rise of Advanced Data Analytics in Diligence

Another major change in the QofE landscape is the increasing use of sophisticated data analytics. Traditionally, diligence relied heavily on historical financials and management interviews. Today, the best QofE processes leverage large-scale data processing, machine learning and AI-driven insights to provide a clearer picture of business performance. These insights can then be communicated via interactive and dynamic dashboards that allow users to visualize data in real-time, making complex data more accessible and easier to understand, facilitating more informed decisions.

Implications for Buyers and Sellers

The increased complexity of diligence means that both buyers and sellers need to be prepared for deeper scrutiny. For private equity firms and strategic acquirers, this means ensuring they have left no stone unturned before tapping the debt markets. For sellers, it means being proactive in presenting clean, defensible financials that stand up to a higher level of diligence.

Conclusion

The QofE process in consumer, retail, restaurant and franchise M&A has never been more important—or more complex. With heightened lender scrutiny, the need for deeper data analytics, and the increasing sophistication of investors, traditional diligence approaches are no longer enough. At Kroll, we are leading the charge in modernizing QofE analysis, helping buyers, sellers and lenders navigate this evolving landscape with confidence.

As the consumer sector continues to face margin pressures, digital transformation and shifting consumer behaviors, a robust, data-driven approach to diligence is the key to successful deal execution. Whether evaluating a restaurant platform, a multi-unit franchise or a high-growth consumer brand, the ability to provide clarity, precision and strategic insights through QofE diligence has never been more critical.

For buyers looking to maximize value and sellers preparing for a sale, now is the time to embrace the next generation of financial diligence. At Kroll, we have the expertise, tools and industry knowledge to help navigate this complex M&A environment.

For more information, please contact Paddy King or any member of the Kroll Transaction Advisory Services team.