{ "meta": { "publication": "Acquidex Intelligence", "docId": "AQX-IR-RST-2026Q1", "vertical": "Restoration", "period": "Q1 2026", "sampleWindow": "2025-05 → 2026-04 (trailing 12 months)", "lastUpdatedISO": "2026-05-02", "sourceUrl": "https://acquidex.com/intel/restoration/atlas/q1-2026/diligence", "methodology": "Acquidex v1.0", "itemCount": 33, "severityCounts": { "critical": 7, "high": 15, "medium": 11 }, "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": "earnings-quality", "pillarLabel": "Earnings Quality", "category": "Financial normalization", "title": "Restate trailing SDE on cash basis (account-by-account AR adjustment)", "whyItMatters": "Revenue recognized before insurance settlement appeared in 61% of deals; SBA cash-basis underwriting drives 20–35% SDE adjustment. Lenders cannot bridge accrual-vs-cash gap — accrual SDE without restatement is the dominant Q1 2026 Fundability fall-through.", "whatToCheck": "Account-by-account AR aging analysis · trailing 24-month accrual revenue · cash collected by month · contested / carrier-pending claims excluded from cash basis · cash-basis SDE bridge memo." }, { "index": 2, "severity": "critical", "pillar": "transferability", "pillarLabel": "Transferability", "category": "TPA channel & insurance vendor", "title": "Verify TPA program registrations are in entity name (not owner personal)", "whyItMatters": "TPA registrations in owner personal name appeared in 43% of deals — non-transferable, post-close re-application timeline 60–180 days. Alacrity, Contractor Connection, Code Blue and major carrier preferred-vendor panels all require entity-level registration for transferability.", "whatToCheck": "TPA application forms (each network) showing registered entity · vendor approval letters · TPA contract assignments · trailing 12-month TPA revenue by network · re-application timeline if not entity-level." }, { "index": 3, "severity": "critical", "pillar": "transferability", "pillarLabel": "Transferability", "category": "IICRC certification & credentialing", "title": "Audit IICRC certification matrix (WRT / ASD / AMRT / FSRT) by technician", "whyItMatters": "IICRC certification gaps appeared in 41% of deals. TPA networks increasingly require IICRC-certified staff above 75%; gaps create TPA renewal risk regardless of operational quality.", "whatToCheck": "IICRC certification per technician (WRT, ASD, AMRT, FSRT, OCT) · expiration and renewal dates · certification class · backup-credential candidates · TPA approved-vendor threshold per network." }, { "index": 4, "severity": "critical", "pillar": "earnings-quality", "pillarLabel": "Earnings Quality", "category": "Financial normalization", "title": "Normalize supplement revenue to trailing 3-year average", "whyItMatters": "Supplement revenue presented at peak-negotiation levels appeared in 34% of deals; normalization to 3-year average reduced presented SDE by 8–18%. Carrier appetite for supplement acceptance compresses with claim volume.", "whatToCheck": "Trailing 3-year supplement revenue by month · supplement-as-share-of-gross trend · estimator-by-estimator supplement performance · carrier-by-carrier supplement acceptance rate · normalized 3-yr-avg SDE memo." }, { "index": 5, "severity": "high", "pillar": "fundability", "pillarLabel": "Fundability", "category": "TPA channel & insurance vendor", "title": "Map customer / carrier concentration on TPA and direct-carrier channels", "whyItMatters": "TPA revenue typically 25–40% of gross; concentration on a single TPA or carrier creates DSCR stress-test risk. Channel concentration (Alacrity / Contractor Connection / Code Blue + State Farm / Allstate) requires concentration-loss DSCR modeling.", "whatToCheck": "Top 10 TPA + carrier sources by trailing-12-month revenue · master service agreement assignment provisions · re-bid history · DSCR stress-tested at 20% concentration loss." }, { "index": 6, "severity": "high", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Technology & operations", "title": "Verify Xactimate seat licensing and estimator certification levels", "whyItMatters": "Xactimate (Verisk) is the dominant carrier-accepted pricing standard; seat licensing transfers must be verified. Estimator certification level (Level 1 / 2 / 3) directly affects supplement-acceptance rate and TPA standing.", "whatToCheck": "Xactimate seat licenses per estimator · certification level (1 / 2 / 3) · subscription transfer terms · trailing supplement-acceptance rate by estimator · Xactanalysis usage." }, { "index": 7, "severity": "high", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Franchise structure (if applicable)", "title": "Audit franchise agreement assignment provisions (if applicable)", "whyItMatters": "Servpro, PuroClean, Paul Davis, Rainbow International, Restoration 1 franchise agreements have specific assignment / change-of-control provisions; royalty obligations (6–12% of gross) and territory rights affect SDE structure.", "whatToCheck": "Franchise agreement assignment / change-of-control clause · royalty schedule · territory rights and exclusivity · franchisor consent timeline · franchise-level training/marketing fee obligations." }, { "index": 8, "severity": "high", "pillar": "fundability", "pillarLabel": "Fundability", "category": "License & regulatory continuity", "title": "Confirm state mold remediation licensing (FL / TX / NY / LA)", "whyItMatters": "Florida (DBPR), Texas (TDLR), New York (DOL), and Louisiana (LSLBC) require separate mold remediation licensing distinct from general contractor licensing; missing or expired licenses void mold-scope revenue.", "whatToCheck": "State mold remediation license per entity · mold assessor / remediator separation (where required) · license expiration and renewal · multi-state coverage if applicable · backup licensed personnel." }, { "index": 9, "severity": "high", "pillar": "fundability", "pillarLabel": "Fundability", "category": "License & regulatory continuity", "title": "Verify EPA NESHAP Asbestos and EPA RRP credentialing", "whyItMatters": "EPA NESHAP Asbestos (40 CFR Part 61 Subpart M) and EPA RRP Lead-based Paint Rule apply to restoration work involving pre-1980 / pre-1978 construction; missing certifications void scope and trigger penalty exposure.", "whatToCheck": "Certified-firm EPA RRP registration · certified-renovator credentials per technician · NESHAP asbestos accreditation · pre-1980 / pre-1978 work scope tracking · disposal documentation." }, { "index": 10, "severity": "high", "pillar": "earnings-quality", "pillarLabel": "Earnings Quality", "category": "Financial normalization", "title": "Add back owner-estimator at full Xactimate-certified PM replacement cost", "whyItMatters": "Owner-estimator normalization is a dominant Earnings Quality finding. Owners performing Xactimate estimating, TPA relationship management, and large-loss PM cannot be replaced at a $75K bookkeeper add-back. Replacement runs $85K–$150K loaded with TPA channel responsibility.", "whatToCheck": "Owner time-allocation interview · Xactimate-certified PM market wage in metro · whether non-owner W-2 estimator exists · TPA relationship management hours · large-loss PM allocation." }, { "index": 11, "severity": "high", "pillar": "earnings-quality", "pillarLabel": "Earnings Quality", "category": "Working capital & balance sheet", "title": "Audit AR aging by claim status (paid / pending / contested)", "whyItMatters": "AR days above 90 in restoration carry contested-claim risk; carrier-pending and contested claims should be excluded from cash-basis SDE entirely.", "whatToCheck": "AR aging by carrier 0–30 / 31–60 / 61–90 / 90+ · per-claim status (paid / pending / contested) · trailing 24-month bad-debt write-offs · carrier-by-carrier AR concentration." }, { "index": 12, "severity": "high", "pillar": "fundability", "pillarLabel": "Fundability", "category": "License & regulatory continuity", "title": "Confirm OSHA HAZWOPER training for category 3 water and biohazard scope", "whyItMatters": "OSHA HAZWOPER (29 CFR 1910.120) applies to category 3 water (sewage) restoration and biohazard remediation; missing training creates strict-liability exposure and TPA program disqualification.", "whatToCheck": "HAZWOPER training certificates per technician (24-hour, 40-hour as applicable) · refresher training cadence · category 3 water work logs · biohazard scope tracking." }, { "index": 13, "severity": "high", "pillar": "earnings-quality", "pillarLabel": "Earnings Quality", "category": "Fleet, equipment & capex", "title": "Reconcile equipment inventory: drying / extraction / antimicrobial application", "whyItMatters": "Equipment fleet (dehumidifiers, air movers, HEPA scrubbers, extraction units, antimicrobial sprayers) is capital-intensive ($250K–$600K minimum). Equipment age and condition drive forward capex; under-equipped operations carry TPA program risk.", "whatToCheck": "Equipment list with model, age, condition · dehumidifier / air mover ratio per loss-volume · HEPA scrubber inventory · trailing 36-month equipment repair spend · replacement schedule." }, { "index": 14, "severity": "medium", "pillar": "earnings-quality", "pillarLabel": "Earnings Quality", "category": "Labor & technical capacity", "title": "Reconcile 1099 contractor labor against subcontractor exposure", "whyItMatters": "Heavy 1099 use in reconstruction scope 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 · subcontractor IICRC credentials." }, { "index": 15, "severity": "medium", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Insurance, bonding & warranty", "title": "Pull workers compensation experience modifier (X-Mod)", "whyItMatters": "X-Mod above 1.0 signals injury frequency above industry average; restoration carries class-code risk on lifting, water exposure, fire-debris handling, and biohazard scope.", "whatToCheck": "NCCI X-Mod worksheet · trailing 5-year claims · OSHA 300 log · restoration-specific class code · safety program documentation · biohazard / asbestos / lead specific endorsements." }, { "index": 16, "severity": "medium", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Insurance, bonding & warranty", "title": "Confirm GL, professional liability, and pollution coverage", "whyItMatters": "Standard GL alone does not cover pollution liability (mold remediation, asbestos abatement, biohazard); under-insurance flags forward premium increase or buyer-side gap coverage.", "whatToCheck": "Certificates of Insurance · Contractors Pollution Liability (CPL) limits · mold / asbestos / lead specific endorsements · umbrella policy · loss runs 5 yr." }, { "index": 17, "severity": "medium", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Real estate & lease", "title": "Read the shop and warehouse lease for change-of-control", "whyItMatters": "Shop, warehouse, and equipment storage 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 · equipment storage compliance." }, { "index": 18, "severity": "medium", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Real estate & lease", "title": "Phase I environmental on owned or controlled real estate", "whyItMatters": "Restoration operations historically used solvents, antimicrobial chemicals, and stored asbestos / lead waste; environmental finding can stop SBA financing on real-estate-included deals.", "whatToCheck": "Phase I ESA report (current within 12 months) · UST / AST records · asbestos / lead disposal documentation · biohazard waste handling records · spill or release history." }, { "index": 19, "severity": "medium", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Technology & operations", "title": "Audit job management software (DASH, Encircle, Restoration Manager) and data ownership", "whyItMatters": "Job management software contracts often have data-export and termination terms that constrain post-close transitions; loss of historical job documentation and Xactimate integration is an Earnings Quality continuity risk.", "whatToCheck": "Software contract terms · data export rights · monthly active seat count · Xactimate / Xactanalysis integration · trailing 12-month uptime / outage log · API access." }, { "index": 20, "severity": "medium", "pillar": "pricing", "pillarLabel": "Pricing", "category": "Technology & operations", "title": "Map online review velocity and reputation footprint", "whyItMatters": "Google review velocity and BBB rating drive consumer-direct claim flow (alongside TPA channel). Sudden negative-review clusters predict TPA program quality-audit issues.", "whatToCheck": "Google Business Profile review trend · BBB complaints and resolution · trailing-24-month star-rating trajectory · response rate · TPA-channel quality audit history." }, { "index": 21, "severity": "medium", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Compliance & legal", "title": "Search lien filings, UCC-1s, and litigation history", "whyItMatters": "Mechanic's liens on property work, customer-claim disputes (mold-recurrence, drying-failure), and 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 · customer-claim and mold-recurrence history." }, { "index": 22, "severity": "medium", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Tax & entity", "title": "Review state sales tax nexus and restoration-service taxability", "whyItMatters": "Restoration sales tax rules vary widely (TX taxes most labor on real-property repair; FL exempts certain insurance-claim work; CA partial); errors compound at 4–8.25% of revenue.", "whatToCheck": "Sales tax returns 3 yr per state · taxability matrix by state for mitigation / reconstruction / mold · audit notices or assessments · insurance-claim-specific carve-outs." }, { "index": 23, "severity": "medium", "pillar": "fundability", "pillarLabel": "Fundability", "category": "License & regulatory continuity", "title": "Audit equipment and chemical inventory storage compliance", "whyItMatters": "Antimicrobial chemicals, asbestos / lead waste, and biohazard materials require strict storage / disposal compliance; mis-stored or expired chemicals are regulatory findings.", "whatToCheck": "Chemical inventory list with expiration · storage area compliance · SDS file · asbestos / lead / biohazard waste manifest · disposal records." }, { "index": 24, "severity": "critical", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Japan · Cross-border (J-GAAP & prefectural)", "title": "Verify Construction Business Act licensure (建設業許可) — 建築工事業 / 管工事業 by prefecture", "whyItMatters": "Japanese restoration work falls under 建築工事業 (building construction) and 管工事業 (piping) categories under the Construction Business Act; entity-level prefectural license required. Operating outside the licensed scope or prefecture is a strict-liability finding under 建設業法.", "whatToCheck": "建設業許可 certificate by category (建築工事業 / 管工事業) · governor- vs minister-issued classification · 一般建設業 vs 特定建設業 · 専任技術者 (technical engineer) on file · prefectural inspection history." }, { "index": 25, "severity": "critical", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Japan · Cross-border (J-GAAP & prefectural)", "title": "Confirm 建築物石綿含有建材調査者 (Asbestos Survey Specialist) certification", "whyItMatters": "JP renovation / restoration work in pre-2006 buildings requires 建築物石綿含有建材調査者 certification under MHLW; missing certification voids commercial scope and triggers 労働安全衛生法 penalty exposure.", "whatToCheck": "建築物石綿含有建材調査者 certification per technician · 石綿作業主任者 (Asbestos Work Supervisor) appointment · pre-2006 work scope tracking · MHLW reporting status · disposal documentation." }, { "index": 26, "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." }, { "index": 27, "severity": "high", "pillar": "pricing", "pillarLabel": "Pricing", "category": "Japan · Cross-border (J-GAAP & prefectural)", "title": "Verify 損害保険会社 settlement structure and direct-carrier relationships", "whyItMatters": "JP non-life carriers (Tokio Marine, Sompo, MS&AD) settle directly with insureds rather than via TPA networks; restoration scope is contractor-and-insured negotiation. Loss of direct-carrier relationship can compress route value materially.", "whatToCheck": "Carrier-by-carrier relationship history · 損害保険査定 (loss adjustment) protocol · scope-and-pricing negotiation track record · written carrier consent on assignment · trailing-period carrier mix." }, { "index": 28, "severity": "high", "pillar": "fundability", "pillarLabel": "Fundability", "category": "Japan · Cross-border (J-GAAP & prefectural)", "title": "Verify consumption tax (消費税) treatment on insurance-claim revenue", "whyItMatters": "JP consumption tax sits at 10% standard rate; insurance-claim restoration work is typically standard-rate but partial-period revenue and carrier-pending claims create reconciliation gaps.", "whatToCheck": "消費税申告書 (consumption tax returns) 3 yr · prepaid contract liability schedule · invoice-system (インボイス制度) qualified invoice issuer registration · 簡易課税 vs 本則課税 election." }, { "index": 29, "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 and social insurance obligations are often understated on US-style accounts.", "whatToCheck": "退職金規程 · 退職給付債務 calculation · 社会保険・労働保険 contribution rate per employee · 専任技術者 retention agreement · 有期 vs 無期 employee mix." }, { "index": 30, "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); existing main-bank relationships often hold change-of-control consent rights via loan covenant.", "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": 31, "severity": "high", "pillar": "transferability", "pillarLabel": "Transferability", "category": "Japan · Cross-border (J-GAAP & prefectural)", "title": "Plan APPI-compliant customer-data transfer for insurance-claim databases", "whyItMatters": "JP APPI (個人情報保護法) requires customers be notified of personal data transfer on M&A; restoration-job databases contain substantial PII (insurance claim numbers, property loss details, photos) that triggers PPC obligations.", "whatToCheck": "Pre-close APPI privacy-policy review · sample customer-notification letter · post-close notification campaign budget · PPC reporting protocol · carrier consent on insured-data transfer." }, { "index": 32, "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 and 印鑑証明書; outstanding director changes or unfiled capital actions are blocking findings at signing.", "whatToCheck": "法人登記簿謄本 issued within 3 months · representative director seal certificate · outstanding capital subscription receivables · prior M&A or capital actions." }, { "index": 33, "severity": "high", "pillar": "pricing", "pillarLabel": "Pricing", "category": "Japan · Cross-border (J-GAAP & prefectural)", "title": "Confirm general-contractor parent-firm relationship transferability", "whyItMatters": "JP restoration work is typically subcontracted by 建設業 general contractors; 元請 (general contractor) relationship transferability is the dominant cross-border Pricing pillar question. Loss of GC relationship can compress route value by 30–50%.", "whatToCheck": "GC relationship list · 元請 contract structure · master subcontract agreement assignment provisions · written GC consent to assignment · trailing-period GC concentration." } ] }