{ "meta": { "publication": "Acquidex Intelligence", "docId": "AQX-IR-ELC-2026Q1", "vertical": "Electrical", "period": "Q1 2026", "sampleWindow": "2025-05 → 2026-04 (trailing 12 months)", "lastUpdatedISO": "2026-05-02", "sourceUrl": "https://acquidex.com/intel/electrical/atlas/q1-2026/diligence", "methodology": "Acquidex v1.0", "itemCount": 42, "severityCounts": { "critical": 9, "high": 15, "medium": 18 }, "disclaimer": "Informational only. Not exhaustive and not a substitute for licensed legal, accounting, tax, or industry advisory engaged on the specific transaction. Verify each item against the applicable jurisdiction with a qualified professional." }, "items": [ { "index": 1, "severity": "critical", "pillar": "fundability", "pillarLabel": "Fundability", "category": "License & regulatory continuity", "title": "Verify the master electrician license is W-2 and attached to the entity", "whyItMatters": "Sole-owner master license is the dominant Q1 SBA fall-through pattern; SBA underwriters are treating it as failed license continuity before reaching DSCR.", "whatToCheck": "State licensing portal lookup · payroll register showing the master as a W-2 employee · entity-named licenses on file · documented permit-pull succession plan." }, { "index": 2, "severity": "critical", "pillar": "earnings-quality", "pillarLabel": "Earnings Quality", "category": "Financial normalization", "title": "Re-cut gross margin at trailing-12-month COMEX copper average + Section 232", "whyItMatters": "COMEX copper traded at $5.44/lb in late March 2026, 83.7% above the Feb 2020 baseline. Section 232 tariff effective April 2, 2026 adds further pass-through gap. Trailing margins blended across the run-up overstate forward economics by ~12% in wire-and-conduit-heavy work.", "whatToCheck": "Wire-and-conduit cost per dollar of revenue trend · fixed-price contract list with material escalation clauses · supplier-invoice copper unit cost by month · post-tariff cost basis memo." }, { "index": 3, "severity": "critical", "pillar": "earnings-quality", "pillarLabel": "Earnings Quality", "category": "Financial normalization", "title": "Strip percentage-of-completion revenue from trailing SDE", "whyItMatters": "Project backlog was partially recognized as trailing SDE in 52% of deals reviewed. Lenders require cash-basis SDE; percentage-completion accruals can overstate the trailing period by 15–30% in project-heavy electrical businesses.", "whatToCheck": "WIP schedule · revenue recognition policy memo · cash-basis vs accrual SDE bridge · backlog-to-completed-job realization rate." }, { "index": 4, "severity": "critical", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Compliance & code continuity", "title": "Reserve forward capex for arc-flash labeling under NEC 2026 Article 110.16", "whyItMatters": "Compliance gaps on installed-base commercial work appeared in 64% of commercial-weighted deals reviewed. Forward retrofit liability flows to capex reserve before LOI; state adoption cycles 12–24 months following NEC 2026 publication.", "whatToCheck": "Installed-base commercial customer list · arc-flash study completion status · labeling sample audit · state NEC 2026 adoption status · short-circuit study and incident-energy calc files." }, { "index": 5, "severity": "critical", "pillar": "earnings-quality", "pillarLabel": "Earnings Quality", "category": "Financial normalization", "title": "Add back owner-electrician at full master-level replacement cost", "whyItMatters": "Owner-electrician normalization is the top SBA fall-through cause this quarter. Owners performing master-level field work, project management, and permit pulling cannot be replaced at a $65K bookkeeper add-back. Replacement cost runs $90K–$140K fully loaded.", "whatToCheck": "Owner time-allocation interview · master-level market wage in metro · whether a separate W-2 master exists · project-management hours separate from field hours." }, { "index": 6, "severity": "high", "pillar": "pricing", "pillarLabel": "Pricing", "category": "Recurring revenue verification", "title": "Pressure-test recurring service agreement revenue against bank deposits", "whyItMatters": "Recurring revenue share is the dominant top-of-band Pricing determinant; presented share that does not reconcile to bank deposit categorization is a finding.", "whatToCheck": "Trailing 12-month bank deposit categorization · ACH file from agreement billing system · reconciliation memo to General Ledger · agreement count by start date." }, { "index": 7, "severity": "high", "pillar": "pricing", "pillarLabel": "Pricing", "category": "Recurring revenue verification", "title": "Cohort-test service agreement retention monthly for 24 months", "whyItMatters": "Headline retention rates can mask churn timing; lenders increasingly require cohort data not blended averages.", "whatToCheck": "Quarterly cohort retention table for trailing 24 months · agreement start dates · ServiceTitan or Housecall Pro export of contract status by month." }, { "index": 8, "severity": "high", "pillar": "pricing", "pillarLabel": "Pricing", "category": "Pipeline & backlog", "title": "Distinguish forward EV / data-center pipeline from trailing SDE", "whyItMatters": "EV charging and data center pipeline was used to inflate implied forward SDE in 28% of deals reviewed. Forward pipeline is not trailing SDE — a $3M EV backlog is a forward opportunity, not a basis for multiple inflation.", "whatToCheck": "Pipeline schedule with PO numbers and customer credit ratings · pipeline conversion rate prior 24 months · cash-basis trailing SDE without pipeline contribution · resource availability against pipeline." }, { "index": 9, "severity": "high", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Labor & technical capacity", "title": "Verify IBEW-signatory vs merit-shop labor structure and forward escalator", "whyItMatters": "IBEW–NECA 2024–2028 inside agreements lock 3–5%/yr wage escalation through 2028 in signatory shops. Forward DSCR sized on historical wage curves overstates coverage.", "whatToCheck": "IBEW collective bargaining agreement · current wage tier and step · scheduled escalator dates 2026–2028 · merit-shop election eligibility if currently signatory." }, { "index": 10, "severity": "high", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Compliance & code continuity", "title": "Confirm OSHA 29 CFR 1910 Subpart S program documentation", "whyItMatters": "OSHA Subpart S is a leading citation category in electrical work. Energized-work permitting, lockout-tagout, and PPE program documentation are standard SBA diligence items.", "whatToCheck": "Energized electrical work permit log · LOTO program · arc-flash PPE inventory · OSHA 300 log 5 yr · citation history." }, { "index": 11, "severity": "high", "pillar": "transferability", "pillarLabel": "Transferability", "category": "License & regulatory continuity", "title": "Audit master and journeyman license matrix vs service area", "whyItMatters": "Multi-state operations (e.g. Twin Cities metro covering MN/WI; Cincinnati covering OH/KY/IN) require separate state masters; coverage gaps are an immediate Transferability finding.", "whatToCheck": "Service-area zip-code map vs state license coverage · master license expiration dates · CE hours documented per state · reciprocity agreements relied on." }, { "index": 12, "severity": "high", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Working capital & supplier", "title": "Verify supplier credit terms travel to the new entity", "whyItMatters": "Distributor credit lines (Graybar, Rexel, CED, Sonepar) are personally guaranteed by the seller in many SMB deals; loss of terms post-close compresses working capital.", "whatToCheck": "Supplier statements with payment terms and credit limits · personal guarantee disclosures · written confirmation of post-close terms portability · annual rebate accrual." }, { "index": 13, "severity": "high", "pillar": "earnings-quality", "pillarLabel": "Earnings Quality", "category": "Pipeline & backlog", "title": "Reconcile fixed-price contract material escalation clauses", "whyItMatters": "Fixed-price contracts written 2023–2024 absorbed copper input run-up unevenly; contracts without material escalation clauses are flowing direct margin loss to the trailing period.", "whatToCheck": "Active fixed-price contract list · material escalation clause language · pass-through trigger thresholds · trailing-12-month margin impact memo · forward exposure on remaining backlog." }, { "index": 14, "severity": "high", "pillar": "earnings-quality", "pillarLabel": "Earnings Quality", "category": "Fleet, equipment & capex", "title": "Inspect fleet inventory: VIN, EVSE tooling, GPS, payment status", "whyItMatters": "Service-van replacement at 8+ years requires $35K–$55K each; under-equipped vans (no EVSE tools, no torque-meter calibration, no GPS) carry forward capex and operational risk.", "whatToCheck": "Vehicle list with VIN, year, mileage, lien status · EVSE tool kit per van · 240V tooling certification · GPS subscription · trailing 36-month repair spend per vehicle." }, { "index": 15, "severity": "high", "pillar": "earnings-quality", "pillarLabel": "Earnings Quality", "category": "Customer concentration & mix", "title": "Map customer concentration and revenue mix", "whyItMatters": "Commercial accounts above 15% of revenue, or any single customer above 10%, materially alter Earnings Quality and Pricing; mix shifts within the trailing period must be normalized.", "whatToCheck": "Top 20 customers by trailing-12-month revenue · residential vs commercial split · service vs project vs maintenance mix · multi-year trend." }, { "index": 16, "severity": "high", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Real estate & lease", "title": "Read the shop and yard lease for change-of-control", "whyItMatters": "Shop, yard, and signage lease is the operational anchor; landlord assignment provisions and below-market rent (if landlord = seller) are common findings.", "whatToCheck": "Lease assignment / change-of-control clause · related-party indicator if landlord shares ownership · market rent comp · remaining term and option rights." }, { "index": 17, "severity": "medium", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Insurance, bonding & warranty", "title": "Verify surety bonding capacity for commercial / public work", "whyItMatters": "States that license electrical contractors typically require a surety bond ($5K–$25K); commercial work over a threshold often requires per-project performance bonds.", "whatToCheck": "Active state surety bond · bonding agency relationship · single-project and aggregate capacity · commercial backlog requiring bonds." }, { "index": 18, "severity": "medium", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Insurance, bonding & warranty", "title": "Confirm GL, professional liability, and umbrella coverage", "whyItMatters": "Standard GL alone does not cover arc-flash incident liability or new-construction wrap-up requirements; under-insurance flags forward premium increase or buyer-side gap coverage.", "whatToCheck": "Certificates of Insurance · contractors pollution liability rider if applicable · umbrella policy · loss runs 5 yr · electrical-specific endorsements." }, { "index": 19, "severity": "medium", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Insurance, bonding & warranty", "title": "Pull the workers compensation experience modifier (X-Mod)", "whyItMatters": "X-Mod above 1.0 signals injury frequency above industry average and predicts forward premium; modifiers are sticky for 3 years post-close. Electrical work carries class-code risk on arc-flash and electrocution exposure.", "whatToCheck": "NCCI X-Mod worksheet · trailing 5-year claims · OSHA 300 log · electrical-specific class code (5190) · safety program documentation." }, { "index": 20, "severity": "medium", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Labor & technical capacity", "title": "Map NECA-cited apprenticeship program participation", "whyItMatters": "Documented apprenticeship pipeline is the highest-ROI Transferability signal in the structurally labor-constrained trade; absence is a forward labor-replacement cost item.", "whatToCheck": "DOL Registered Apprenticeship status (RAPIDS) · IBEW JATC participation if signatory · ABC apprenticeship if merit-shop · apprentice register and curriculum hours per week." }, { "index": 21, "severity": "medium", "pillar": "earnings-quality", "pillarLabel": "Earnings Quality", "category": "Labor & technical capacity", "title": "Reconcile 1099 contractor labor against subcontractor exposure", "whyItMatters": "Heavy 1099 use can trigger ABC-test or worker-classification audits (esp. CA AB5, NJ, MA) and inflates apparent labor margin while hiding employer tax exposure.", "whatToCheck": "1099-NEC totals 3 yr · per-contractor revenue dependence · scope-of-work agreements · workers comp coverage on 1099 entities." }, { "index": 22, "severity": "medium", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Fleet, equipment & capex", "title": "Inventory specialty tooling and calibration records", "whyItMatters": "Megohmmeters, ground-resistance testers, thermal imagers, and torque drivers require periodic calibration; missing tooling is forward capex and missing calibration is a code-compliance finding.", "whatToCheck": "Tool list per van · calibration certificates · in-shop test equipment · arc-flash PPE inventory and inspection log." }, { "index": 23, "severity": "medium", "pillar": "earnings-quality", "pillarLabel": "Earnings Quality", "category": "Working capital & balance sheet", "title": "Age accounts receivable and write-off trend", "whyItMatters": "Commercial-heavy operators carry 60–90 day AR; underestimating collectibility overstates working-capital target at close.", "whatToCheck": "AR aging by customer 0–30 / 31–60 / 61–90 / 90+ · trailing 24-month bad-debt write-offs · concentration risk per customer above 10%." }, { "index": 24, "severity": "medium", "pillar": "pricing", "pillarLabel": "Pricing", "category": "Pipeline & backlog", "title": "Reconcile commercial backlog and signed POs", "whyItMatters": "Multi-month backlog presented as forward revenue must be tested against signed POs and customer creditworthiness; verbal commitments do not survive due diligence.", "whatToCheck": "Backlog schedule with PO numbers · customer credit ratings · scheduled vs realized completion 24 mo · cancellation history." }, { "index": 25, "severity": "medium", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Compliance & code continuity", "title": "Identify Davis-Bacon, prevailing-wage, and Buy America exposure", "whyItMatters": "Federally funded jobs (NEVI EV charging, school-district work, military housing, CHIPS facilities) trigger prevailing-wage and Buy America requirements; non-compliance is a payback liability.", "whatToCheck": "Federally funded contract list · certified payroll records · Buy America compliance documentation · DOL audit history." }, { "index": 26, "severity": "medium", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Real estate & lease", "title": "Phase I environmental on owned or controlled real estate", "whyItMatters": "Electrical operations historically used PCB-containing transformers, lead-acid batteries, and solvent storage; environmental finding can stop SBA financing on real-estate-included deals.", "whatToCheck": "Phase I ESA report (current within 12 months) · UST / AST records · spill or release history · PCB transformer inventory if any." }, { "index": 27, "severity": "medium", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Technology & operations", "title": "Audit field service management software and data ownership", "whyItMatters": "ServiceTitan, Housecall Pro, Procore (project) contracts often have data-export and termination terms that constrain post-close transitions; loss of historical service history is an Earnings Quality continuity risk.", "whatToCheck": "FSM contract terms · data export rights · monthly active seat count · trailing 12-month uptime / outage log · API access." }, { "index": 28, "severity": "medium", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Technology & operations", "title": "Pull callback rate and warranty rework metrics", "whyItMatters": "Callback rate above 8% on installs or 6% on service signals tech-quality issues that materialize as labor cost and reputation drag post-close.", "whatToCheck": "FSM callback report · same-job-revisit rate · trailing 12-month warranty labor cost · electrician-by-electrician callback breakdown." }, { "index": 29, "severity": "medium", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Compliance & code continuity", "title": "Search lien filings, UCC-1s, and litigation history", "whyItMatters": "Mechanic's liens filed against the entity (or filed by the entity) signal commercial collection issues; unreleased UCC-1s on equipment block clean title at close.", "whatToCheck": "Secretary of State UCC-1 search · county-level mechanic's liens · PACER litigation search · state court docket search." }, { "index": 30, "severity": "medium", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Tax & entity", "title": "Review state sales tax nexus and labor/parts taxability", "whyItMatters": "Electrical sales tax rules vary widely (TX taxes labor on real-property repair; FL exempts most labor; CA partial); errors compound at 4–8.25% of revenue and SBA underwriting flags large unrecorded liability.", "whatToCheck": "Sales tax returns 3 yr per state · taxability matrix by state for labor / parts / agreement · audit notices or assessments." }, { "index": 31, "severity": "medium", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Labor & technical capacity", "title": "Verify NABCEP / EVITP certification depth for solar / EV scope", "whyItMatters": "Specialty scope (solar tie-in, EV charging) often requires NABCEP (solar) or EVITP (EV charging) credentials at the technician level; certification gap is a forward labor-cost item for the specialty pipeline.", "whatToCheck": "NABCEP / EVITP cert ID per technician · expiration dates · scope coverage vs trailing solar/EV revenue · forward training budget." }, { "index": 32, "severity": "medium", "pillar": "pricing", "pillarLabel": "Pricing", "category": "Technology & operations", "title": "Map online review velocity and reputation footprint", "whyItMatters": "Google review velocity below 1 per month per metro is a demand-generation finding; sudden negative-review clusters predict commercial fall-out.", "whatToCheck": "Google Business Profile review trend · BBB complaints and resolution · trailing-24-month star-rating trajectory · response rate." }, { "index": 33, "severity": "critical", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Japan · Cross-border (J-GAAP & prefectural)", "title": "Verify Construction Business Act licensure (建設業許可) — 電気工事業 by prefecture", "whyItMatters": "Japanese electrical contractors require a 電気工事業 license issued either by the prefectural governor (single-prefecture) or by MLIT (multi-prefecture). Operating outside the licensed scope or prefecture is a strict-liability finding under the Construction Business Act (建設業法).", "whatToCheck": "電気工事業 license certificate · governor- vs minister-issued classification · 一般建設業 vs 特定建設業 (specified, required for subcontracts ≥ ¥45M) · expiration and renewal status · technical engineer (専任技術者) on file." }, { "index": 34, "severity": "critical", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Japan · Cross-border (J-GAAP & prefectural)", "title": "Confirm 電気工事士法 (Electrician Act) certification per technician", "whyItMatters": "JP electrical work requires 第一種 (full-scope) or 第二種 (≤600V general residential) certification per the Electrician Act (電気工事士法). 200V residential and panel work requires 第二種 minimum; commercial / high-voltage requires 第一種. Missing or expired certification voids work scope and triggers METI penalty exposure.", "whatToCheck": "電気工事士 certification per tech (Type 1 / Type 2) · expiration and renewal dates · scope of past work requiring credentialing · 主任電気工事士 (chief electrician) appointment letter." }, { "index": 35, "severity": "critical", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Japan · Cross-border (J-GAAP & prefectural)", "title": "Confirm 電気工事業登録 (Electrical Construction Business registration) by prefecture", "whyItMatters": "In addition to the per-tech 電気工事士 certification, the entity must hold 電気工事業登録 with each prefecture in which it operates. Registration is non-portable and must be re-filed at change of ownership — typically a 30–60 day administrative window during which work scope is constrained.", "whatToCheck": "電気工事業登録 certificate per prefecture · 主任電気工事士 appointment · re-registration timeline at signing · provisional-status rules during prefectural review." }, { "index": 36, "severity": "critical", "pillar": "earnings-quality", "pillarLabel": "Earnings Quality", "category": "Japan · Cross-border (J-GAAP & prefectural)", "title": "Re-cut financials under J-GAAP goodwill amortization", "whyItMatters": "J-GAAP requires goodwill amortization over up to 20 years (typically 5–10), unlike US GAAP impairment-only treatment. Trailing earnings presented under one regime systematically misstate the other; this is the single largest source of cross-border valuation error.", "whatToCheck": "Audited J-GAAP financial statements (損益計算書 P/L, 貸借対照表 B/S) · goodwill schedule with amortization period · accountant-prepared US-GAAP bridging memo · differences in revenue recognition for installation contracts." }, { "index": 37, "severity": "high", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Japan · Cross-border (J-GAAP & prefectural)", "title": "Verify consumption tax (消費税) treatment on installation vs maintenance revenue", "whyItMatters": "JP consumption tax sits at 10% standard / 8% reduced rate; electrical installation and maintenance are typically standard-rate but partial-period revenue and deferred-installation deposits create reconciliation gaps that compound at 10% of revenue.", "whatToCheck": "消費税申告書 (consumption tax returns) 3 yr · installation deposit liability schedule · invoice-system (インボイス制度) qualified invoice issuer registration number · 簡易課税 vs 本則課税 election." }, { "index": 38, "severity": "high", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Japan · Cross-border (J-GAAP & prefectural)", "title": "Pressure-test the long-term employment cost structure", "whyItMatters": "Japan's 終身雇用 (lifetime employment) convention and Article 16 of the Labor Contract Act make termination far harder than at-will US employment. Severance reserves, social insurance employer contributions (社会保険料 ~15% of wages), and statutory retirement pay obligations are often understated on US-style management accounts.", "whatToCheck": "退職金規程 (retirement allowance rule) · 退職給付債務 (retirement benefit obligation) calculation · 社会保険・労働保険 contribution rate per employee · 有期 (fixed-term) vs 無期 (indefinite) employee mix." }, { "index": 39, "severity": "high", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Japan · Cross-border (J-GAAP & prefectural)", "title": "Map the relationship-banking structure and CoC consent rights", "whyItMatters": "JP SMB acquisitions typically rely on relationship-based regional bank financing (地銀 / 信金) rather than a national SBA-equivalent. Existing main-bank relationships (メインバンク) often hold change-of-control consent rights via loan covenant; loss of the relationship can compress working capital independent of credit metrics.", "whatToCheck": "Main-bank loan agreements with CoC clauses · personal guarantee (個人保証) by selling shareholder · relationship history with regional bank · 信用保証協会 coverage · post-close lender continuation letter." }, { "index": 40, "severity": "medium", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Japan · Cross-border (J-GAAP & prefectural)", "title": "Audit Building Standards Act (建築基準法) compliance for installed equipment", "whyItMatters": "Installations in commercial buildings require 建築設備検査 (Building Equipment Inspection) reports filed with the local government every 1–3 years; older installs often predate current code, creating retrofit liability that travels with the customer relationship.", "whatToCheck": "建築設備検査報告書 filings for the trailing 5 years · panel and feeder code-grandfathering memos for pre-2003 installations · third-party inspector reports." }, { "index": 41, "severity": "medium", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Japan · Cross-border (J-GAAP & prefectural)", "title": "Inspect 商業登記 (commercial registry) and 印鑑証明 (seal certificate)", "whyItMatters": "JP corporate transactions require fresh 履歴事項全部証明書 (commercial register full extract) and 印鑑証明書 (registered seal certificate); outstanding director changes or unfiled capital actions are blocking findings at signing.", "whatToCheck": "法人登記簿謄本 (履歴事項全部証明書) issued within 3 months · representative director seal certificate · outstanding capital subscription receivables · prior M&A or capital actions on the registry." }, { "index": 42, "severity": "high", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Japan · Cross-border (J-GAAP & prefectural)", "title": "Plan APPI-compliant customer-data transfer notification", "whyItMatters": "Japan's Act on the Protection of Personal Information (個人情報保護法 / APPI) requires customers be notified of any transfer of their personal data on M&A and granted opt-out rights; failure invites Personal Information Protection Commission (PPC) scrutiny and customer complaints.", "whatToCheck": "Pre-close APPI privacy-policy review · sample customer-notification letter (email + mail) · post-close notification campaign budget (¥2–5M per 10K customers) · PPC reporting protocol if material breach." } ] }