Smart Diligence: Why Better Data is Changing the Game in Consumer M&A

April 16, 2025

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 private equity firms, strategic buyers 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.

Key Trends in QofE Analysis in Consumer Businesses

Unit-Level Performance and Variability

Investors are no longer satisfied with only consolidated financials; they want to understand the performance of individual units, stores or franchise locations. This means analyzing profitability dispersion across locations, evaluating lease structures and assessing local market dynamics. For franchisors, it also means scrutinizing royalty streams and franchisee health in a way that was not as common five years ago.

Sales Trends and Consumer Behavior Analytics

Consumer-facing businesses are inherently exposed to shifts in spending patterns, whether due to inflation, shifting brand preferences or macroeconomic conditions. A strong QofE process now integrates external market data with internal transaction trends, leveraging point of sale (POS ) data, digital sales patterns and customer demographics to assess revenue sustainability.

Delivery and Digital Revenue Segmentation

The restaurant and retail sectors have seen a seismic shift toward digital sales channels, loyalty programs and third-party delivery. Evaluating the sustainability of these revenue streams—while accounting for the cost structures associated with third-party platforms—is now a core part of QofE diligence. Investors want to see how digital growth translates into profitability and whether businesses have defensible customer acquisition strategies.

Margin Pressures and Cost Normalization

Rising labor costs, supply chain and tariff volatility, and inflationary pressures have made gross margin and cost of goods sold analysis even more critical. Investors are scrutinizing wage trends, automation initiatives and vendor contracts more closely, making cost normalization a key component of diligence.

Lender Scrutiny and EBITDA Adjustments

With interest rates taking longer to come down, lenders are still applying an elevated level of scrutiny to add-backs and adjustments in QofE reports. Aggressive pro forma adjustments from new store openings and cost savings are facing more skepticism. Lenders want to see hard data supporting any adjustments, and buyers are structuring deals more conservatively as a result.

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.

How Advanced Analytics is Transforming QofE

Transaction-Level Revenue and Margin Analysis

Instead of relying on summarized income statements or trial balances, modern QofE processes pull transaction-level data from POS systems, e-commerce platforms and ERP software to identify trends and anomalies at a granular level.

Predictive Modeling for Seasonality and Demand Forecasting

Investors want to understand whether recent revenue growth is sustainable or if it is driven by temporary demand spikes. Advanced models can help assess cyclicality and customer retention patterns.

Lease and Real Estate Analytics

For multi-unit businesses, location strategy is critical. Data tools now allow for geospatial analysis of store performance, demographic trends and real estate lease risk—helping investors identify underperforming locations before closing a deal.

Franchisee Health Monitoring

With many franchise transactions, the real risk lies in the financial stability of franchisees. Advanced data tools can now track franchisee-level sales trends, financial covenants and compliance metrics, providing a more comprehensive risk assessment.

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.

For Buyers	For Sellers
Expect longer diligence timelines as QofE processes dig deeper into operational and financial details. Push for transaction-level data to avoid surprises post-close. Be cautious about aggressive EBITDA adjustments—lenders are scrutinizing them more than ever.	Ensure data integrity across financial systems, POS platforms and operational reporting. Be prepared to justify revenue and margin assumptions with supporting data. Address unit-level profitability disparities before going to market to avoid price reductions in 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.

Whether you’re a buyer seeking deeper conviction in an increasingly competitive market or a seller preparing to defend value, the quality of earnings process has evolved—and so have expectations. At Kroll, we combine sector specialization, granular analysis, and data-driven insight to deliver diligence that goes beyond the standard. In a market where differentiation matters, so does the depth of your diligence.

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

Stay Ahead with Kroll

Transaction Advisory Services

Kroll’s Transaction Advisory Services platform offers corporate and financial investors with deep accounting and technical expertise, commercial knowledge, industry insight and seamless analytical services throughout the deal continuum.

Learn More