September 24, 2025
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Multi-Entity Healthcare Holding Company (Lender-Facing)
Fractional CFO Services
Quality of Earnings Clarity Across a Multi-Entity Healthcare Group
About Case Study
Industry Context
Healthcare services M&A remained active post-2023, particularly in behavioral health, pediatric care, and home health—sectors represented in this client’s revenue mix. Investors are drawn to platform opportunities with reliable EBITDA and strong compliance records. However, scaling across multiple providers introduces risks—such as billing complexity, uneven working capital efficiency, and integration challenges—which elevate the importance of lender-ready QoE reporting.
Client Challenge
The client, a healthcare holding company, aimed to refinance existing debt and secure additional capital for strategic acquisitions. While consolidated financials appeared sound, underlying concerns—including AR strain, normalization gaps, and inconsistent capital deployment—prompted a request for an institutional-grade QoE to support lender negotiations and risk pricing alignment. 1
Our Approach
Data Intake & Entity Mapping
● Disaggregated consolidated financials across nine legal entities
● Reconciled revenue, intercompany flows, and expense allocations
Earnings Quality & Normalization
● Reviewed compensation structures, non-recurring costs, and related-party transactions
● Confirmed no significant one-time adjustments; validated EBITDA normalization
Leadership Review
Marc Egort and Sam Applebaum conducted a detailed, line-by-line examination of financial statements, focusing on:
● Margin integrity
● Debt reconciliation
● Cash flow and DSCR consistency
This human-led process applied professional judgment to validate every material variance surfaced by AI.
AI-Assisted Modeling
AI tools supported the analysis by identifying anomalies across AR aging, payer patterns, and revenue recognition. These insights were incorporated into:
● Scenario modeling
● DSCR sensitivity testing
● Working capital cycle evaluations
AR Aging & Working Capital Review
● Detailed analysis of receivables by entity
● Identified two subsidiaries with 90+ day AR balances making up over one-third of total AR
● Recommended targeted collections strategy
Strategic Risk Mapping & Recommendations
Findings were synthesized into actionable guidance across:
● EBITDA quality
● Receivables aging
● Capital planning and liquidity optimization
Key Insights
AR Aging & Collection Risk
Two entities had AR balances aged 90+ days, comprising 36%–54% of their total receivables. These aging patterns raised concerns over cash conversion efficiency and required further audit trail validation.
Revenue Sensitivity & DSCR Impact
Stress-tested DSCR showed that even with a 20% revenue decline, coverage remained at ~1.8x—above the acceptable threshold. However, prolonged AR collection delays could weaken coverage further.
Growth vs. Liquidity Tension
Capital expenditures remained modest (<$500K), preserving liquidity in the short term. Yet, this also signaled constrained capacity to scale or absorb labor cost increases.
Data Integrity Observations
Two subsidiaries lacked full AR backup schedules. However, no evidence of non-operational add-backs or undocumented adjustments was found.
Results
Outcomes & Strategic Value
Deliverable Quality
The final QoE report adhered to institutional standards, clearly presenting normalized EBITDA, cash flow dynamics, and entity-specific AR exposure. It supported both financial credibility and lender readiness, while surfacing actionable operational insights.
Business Impact
The client successfully used the QoE findings to:
● Advance refinancing discussions
● Align capital strategy with lender expectations
● Refine internal cash flow management and AR controls
The combination of AI-powered analytics and CFO expertise ensured precision, transparency, and faster turnaround for time-sensitive decision-making.
Broader Implications
This engagement demonstrated the power of a hybrid diligence model—where technology accelerates analysis, and professional judgment ensures relevance and reliability. Egort & Partners delivered more than just a QoE report—we provided strategic foresight that positioned the client for informed growth.
Lessons Learned & Best Practices
Critical Success Factors
● Deep professional experience ensures findings are interpreted with context and insight
● Clearly defined roles for AI enhance speed without sacrificing judgment
● Scenario modeling must reflect operational realities across multiple entities
Implementation Best Practices
● Use AR aging and DSO trends as liquidity indicators
● Align capital strategy with payer risks and reimbursement cycles
● Maintain flexible templates for multi-entity EBITDA rollups
● Normalize based on documentation—not assumptions
QoE Clarity Across Multi-Entity Healthcare Group Glossary
1. QoE (Quality of Earnings): Review to confirm if reported profits are accurate and sustainable.
2. Multi-entity healthcare holding company: A parent company owning several separate healthcare businesses.
3. EBITDA: Profit before interest, taxes, depreciation, and amortization—shows core earnings.
4. Normalized EBITDA: EBITDA adjusted to remove irregular or owner-specific costs.
5. DSCR (Debt Service Coverage Ratio): Measures how easily earnings can cover debt payments.
6. Liquidity: Availability of cash or assets easily converted to cash.
7. AI-assisted analytics: Software tools that identify financial anomalies faster.
8. Entity mapping: Breaking down and organizing financial data for each legal entity in a group.
9. Intercompany flows: Money or resources exchanged between related companies.
10. Non-recurring costs: Expenses that are unusual or one-time only.
11. Related-party transactions: Deals between companies or people with close ties, which may need extra scrutiny.
12. Margin integrity: How consistent and reliable profit margins are.
13. Revenue recognition: Rules for when to record income in the books.
14. Scenario modeling: Testing different “what-if” financial situations.
15. Sensitivity testing: Checking how much key metrics (like DSCR) change under different assumptions.
16. Working capital: Short-term assets minus short-term liabilities; cash buffer for operations.
17. AR (Accounts Receivable): Money owed by customers for services provided.
18. AR aging: Categorizing unpaid invoices by how long they’ve been outstanding.
19. Capital expenditures (CapEx): Money spent to buy or upgrade long-term assets like equipment or facilities.
20. DSO (Days Sales Outstanding):Average time it takes to collect payment after a sale.
21. Add-backs: Items added back to profit calculations to reflect true operating income.
22. EBITDA rollup: Combining EBITDA from multiple entities into one total.
