{
  "meta": {
    "publication": "Acquidex Intelligence",
    "docId": "AQX-IR-RFG-2026Q1",
    "vertical": "Roofing",
    "period": "Q1 2026",
    "sampleWindow": "2025-05 → 2026-04 (trailing 12 months)",
    "lastUpdatedISO": "2026-05-02",
    "sourceUrl": "https://acquidex.com/intel/roofing/atlas/q1-2026/diligence",
    "methodology": "Acquidex v1.0",
    "itemCount": 34,
    "severityCounts": {
      "critical": 6,
      "high": 17,
      "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": "Normalize trailing SDE to 5-year weighted average (storm-year removal)",
      "whyItMatters": "Storm-year SDE used as baseline without normalization appeared in 67% of deals; steady-state typically 40–60% of storm-year. SBA cash-basis underwriting requires normalization — accrual SDE without restatement is the dominant Q1 2026 Fundability fall-through.",
      "whatToCheck": "Trailing 5-year revenue and SDE by year · NOAA storm-event database overlay for service-area zip codes · steady-state vs storm-year revenue segmentation · 5-year weighted SDE memo · lender comparable from prior-storm-year normalization."
    },
    {
      "index": 2,
      "severity": "critical",
      "pillar": "earnings-quality",
      "pillarLabel": "Earnings Quality",
      "category": "Warranty tail liability",
      "title": "Quantify workmanship warranty tail liability and reserve at close",
      "whyItMatters": "Unpriced workmanship warranty tail appeared in 38% of deals. 10-year warranty on installed-value book at 1.5–3% claim rate creates quantifiable forward contingent liability of $120K–$240K on a typical $8M trailing 3-year install book.",
      "whatToCheck": "Trailing 10-year installed-value register (residential + commercial) · workmanship warranty terms by job · trailing claim rate · forward warranty exposure memo · escrow / reserve / price-adjustment proposal at close."
    },
    {
      "index": 3,
      "severity": "critical",
      "pillar": "fundability",
      "pillarLabel": "Fundability",
      "category": "Worker comp + EMR",
      "title": "Verify EMR (Experience Modification Rate) with 5-year carrier loss runs",
      "whyItMatters": "EMR above 1.0 inflates worker-comp premium and restricts commercial bid eligibility; EMR is sticky for 3 years post-close. Roofing class code 5552 carries among the highest base rates in any trade.",
      "whatToCheck": "NCCI EMR worksheet · carrier loss runs 5 yr · OSHA 300 log · class-code distribution (residential vs commercial) · safety program documentation · EMR-driven premium delta vs clean-EMR comp."
    },
    {
      "index": 4,
      "severity": "critical",
      "pillar": "transferability",
      "pillarLabel": "Transferability",
      "category": "Manufacturer status & extended warranty",
      "title": "Confirm manufacturer status (GAF Master Elite / OC Platinum / CT SELECT) is in entity name + transferable",
      "whyItMatters": "Manufacturer status held in owner personal name or at risk of lapse appeared in 29% of deals. Status loss eliminates extended warranty marketing advantage and in some cases the extended material warranty offered to homeowners.",
      "whatToCheck": "Manufacturer status certification per program (Master Elite / Platinum Preferred / SELECT) · entity vs personal name registration · volume / training requirements for new owner · written transfer-conditions confirmation · trailing-period qualifying volume."
    },
    {
      "index": 5,
      "severity": "high",
      "pillar": "earnings-quality",
      "pillarLabel": "Earnings Quality",
      "category": "Financial normalization",
      "title": "Normalize insurance supplement revenue to 3-year average",
      "whyItMatters": "Supplement revenue at peak appeared in 41% of deals; normalization to 3-year average reduced presented SDE by 10–20%. Carrier appetite for supplement approval compresses after high-volume storm events.",
      "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": 6,
      "severity": "high",
      "pillar": "pricing",
      "pillarLabel": "Pricing",
      "category": "Revenue mix & forecastability",
      "title": "Distinguish steady-state re-roofing/maintenance from storm-insurance revenue",
      "whyItMatters": "Re-roofing/maintenance vs storm-insurance distinction is the core underwriting question; recurring re-roofing is forecastable, storm work is not. Steady-state above 50% of revenue is the primary upper-band condition.",
      "whatToCheck": "5-year revenue segmentation by job type (re-roofing / maintenance / repair / new construction / storm-restoration) · trailing-period mix · multi-year trend · DSCR stress-tested on steady-state-only."
    },
    {
      "index": 7,
      "severity": "high",
      "pillar": "fundability",
      "pillarLabel": "Fundability",
      "category": "License & regulatory continuity",
      "title": "Audit OSHA fall-protection program documentation",
      "whyItMatters": "OSHA Subpart M (Fall Protection) is among the most heavily cited categories in roofing; missing program documentation creates strict-liability exposure and X-Mod inflation.",
      "whatToCheck": "Fall-protection program documentation · OSHA 10/30 hour Construction certification per crew member · personal fall arrest system inventory · trailing OSHA citation history · safety-program training cadence."
    },
    {
      "index": 8,
      "severity": "high",
      "pillar": "fundability",
      "pillarLabel": "Fundability",
      "category": "Carrier & customer concentration",
      "title": "Map customer concentration on insurance carriers and TPA channels",
      "whyItMatters": "Carrier concentration above 25% creates DSCR stress-test risk if carrier preferred-vendor status changes. AOB reform exposure (FL) and supplement-rate compression are dominant carrier-side risks.",
      "whatToCheck": "Top 10 carrier sources by trailing-12-month revenue · TPA / preferred-vendor status verification · master service agreement assignment provisions · DSCR stress-tested at 20% concentration loss · AOB exposure if FL."
    },
    {
      "index": 9,
      "severity": "high",
      "pillar": "earnings-quality",
      "pillarLabel": "Earnings Quality",
      "category": "Financial normalization",
      "title": "Add back owner-estimator at full estimator/PM replacement cost",
      "whyItMatters": "Owner-estimator normalization is a dominant Earnings Quality finding. Owners performing estimating, manufacturer-relationship management, and large-loss PM cannot be replaced at a $65K bookkeeper add-back. Replacement runs $78K–$135K loaded.",
      "whatToCheck": "Owner time-allocation interview · estimator/PM market wage in metro · whether non-owner W-2 estimator exists · manufacturer-relationship management hours · large-loss PM allocation."
    },
    {
      "index": 10,
      "severity": "high",
      "pillar": "fundability",
      "pillarLabel": "Fundability",
      "category": "License & regulatory continuity",
      "title": "Verify state and local contractor licensing and bonding",
      "whyItMatters": "State licensing varies materially (FL CILB, TX RCAT, CA CSLB C-39, AZ ROC C-42); some states do not state-license roofers but municipal licensing applies. Missing or expired licensing voids permit-pull authority.",
      "whatToCheck": "State / local licensing per jurisdiction · qualifying agent status (W-2 vs personal) · bonding requirements · license expiration and renewal · multi-state coverage if applicable."
    },
    {
      "index": 11,
      "severity": "high",
      "pillar": "earnings-quality",
      "pillarLabel": "Earnings Quality",
      "category": "Labor & subcontractor exposure",
      "title": "Audit subcontractor crew structure and 1099 worker classification",
      "whyItMatters": "Heavy 1099 / subcontractor use in roofing is widespread but creates worker-classification audit exposure (esp. CA AB5, NJ, MA) and OSHA / fall-protection liability that can transfer to entity post-close.",
      "whatToCheck": "1099-NEC totals 3 yr · per-subcontractor revenue dependence · scope-of-work agreements · workers comp coverage on subcontractors · OSHA / fall-protection compliance for subcontracted crews."
    },
    {
      "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 (ABC Supply, Beacon Roofing Supply, SRS Distribution) 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": "fundability",
      "pillarLabel": "Fundability",
      "category": "Compliance & legal",
      "title": "Audit AOB exposure and pending claim litigation (FL post-HB 1 + storm-active states)",
      "whyItMatters": "Florida House Bill 1 (2022 special session) restructured AOB and claim litigation; pending pre-HB-1 claims and active litigation can carry material liability into close. Storm-active markets carry parallel litigation exposure.",
      "whatToCheck": "Active AOB / claim litigation list · trailing 5-year claim litigation history · settled / pending / open status · attorney hold-back amounts · post-HB-1 transition compliance for FL operators."
    },
    {
      "index": 14,
      "severity": "high",
      "pillar": "transferability",
      "pillarLabel": "Transferability",
      "category": "Worker comp + EMR",
      "title": "Pull workers compensation experience modifier (X-Mod) trailing 5 years",
      "whyItMatters": "X-Mod above 1.0 inflates worker-comp premium and restricts commercial bid eligibility; modifiers are sticky for 3 years post-close. Roofing class code 5552 makes this a binding constraint.",
      "whatToCheck": "NCCI X-Mod worksheet 5 yr · trailing 5-year claims · OSHA 300 log · class-code 5552 share · safety program documentation · trailing fatality / serious-injury history."
    },
    {
      "index": 15,
      "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 workmanship warranty claim defense or fall-protection-related professional liability; under-insurance flags forward premium increase or buyer-side gap coverage.",
      "whatToCheck": "Certificates of Insurance · workmanship warranty claim coverage · fall-protection / professional liability · umbrella policy · loss runs 5 yr · roofing-specific endorsements."
    },
    {
      "index": 16,
      "severity": "medium",
      "pillar": "fundability",
      "pillarLabel": "Fundability",
      "category": "Insurance, bonding & warranty",
      "title": "Verify surety bonding capacity for commercial / public work",
      "whyItMatters": "States that license roofing 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": 17,
      "severity": "medium",
      "pillar": "earnings-quality",
      "pillarLabel": "Earnings Quality",
      "category": "Fleet, equipment & capex",
      "title": "Inspect fleet inventory: VIN, ladder racks, fall-protection equipment, payment status",
      "whyItMatters": "Service-vehicle replacement at 8+ years requires $35K–$50K each; under-equipped vehicles (no ladder racks, missing fall-protection equipment, no GPS) carry forward capex and operational risk.",
      "whatToCheck": "Vehicle list with VIN, year, mileage, lien status · ladder rack inventory · fall-protection equipment per vehicle · GPS subscription · trailing 36-month repair spend."
    },
    {
      "index": 18,
      "severity": "medium",
      "pillar": "transferability",
      "pillarLabel": "Transferability",
      "category": "Real estate & lease",
      "title": "Read the shop / yard / material storage lease for change-of-control",
      "whyItMatters": "Shop, yard, and material 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 · material storage compliance."
    },
    {
      "index": 19,
      "severity": "medium",
      "pillar": "fundability",
      "pillarLabel": "Fundability",
      "category": "Real estate & lease",
      "title": "Phase I environmental on owned or controlled real estate",
      "whyItMatters": "Roofing operations historically used solvents, asphalt-handling chemicals, and lead-flashing materials; 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 · asphalt / solvent storage area inspection · lead-flashing disposal records."
    },
    {
      "index": 20,
      "severity": "medium",
      "pillar": "transferability",
      "pillarLabel": "Transferability",
      "category": "Technology & operations",
      "title": "Audit job management software (AccuLynx, JobNimbus, Roofr) 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, photos, and warranty records is an Earnings Quality continuity risk.",
      "whatToCheck": "Software contract terms · data export rights · monthly active seat count · warranty record retention · trailing 12-month uptime / outage log · API access."
    },
    {
      "index": 21,
      "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 and post-storm leads. Sudden negative-review clusters (especially around AOB / storm-chaser allegations) predict regulatory and TPA-channel quality issues.",
      "whatToCheck": "Google Business Profile review trend · BBB complaints and resolution · trailing-24-month star-rating trajectory · response rate · AOB / storm-chaser complaint history."
    },
    {
      "index": 22,
      "severity": "medium",
      "pillar": "fundability",
      "pillarLabel": "Fundability",
      "category": "Compliance & legal",
      "title": "Search lien filings, UCC-1s, and litigation history",
      "whyItMatters": "Mechanic's liens, customer-claim disputes (workmanship / leaks), 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 · workmanship-claim and leak-claim history."
    },
    {
      "index": 23,
      "severity": "medium",
      "pillar": "fundability",
      "pillarLabel": "Fundability",
      "category": "Tax & entity",
      "title": "Review state sales tax nexus and roofing-service taxability",
      "whyItMatters": "Roofing sales tax rules vary widely (TX taxes most labor on real-property repair; FL exempts certain residential; CA partial); errors compound at 4–8.25% of revenue.",
      "whatToCheck": "Sales tax returns 3 yr per state · taxability matrix by state for re-roofing / repair / commercial / storm-restoration · audit notices or assessments."
    },
    {
      "index": 24,
      "severity": "medium",
      "pillar": "fundability",
      "pillarLabel": "Fundability",
      "category": "Compliance & legal",
      "title": "Identify Davis-Bacon, prevailing-wage, and Buy America exposure",
      "whyItMatters": "Federally funded jobs (school-district roofing, military housing, federal facility) 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": 25,
      "severity": "critical",
      "pillar": "fundability",
      "pillarLabel": "Fundability",
      "category": "Japan · Cross-border (J-GAAP & prefectural)",
      "title": "Verify Construction Business Act licensure (建設業許可) — 屋根工事業 by prefecture",
      "whyItMatters": "Japanese roofing contractors require a 屋根工事業 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 建設業法.",
      "whatToCheck": "屋根工事業 license certificate · 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": 26,
      "severity": "high",
      "pillar": "transferability",
      "pillarLabel": "Transferability",
      "category": "Japan · Cross-border (J-GAAP & prefectural)",
      "title": "Confirm 防水施工技能士 (Waterproofing Technician) certification for waterproofing scope",
      "whyItMatters": "JP roofing work involving waterproofing (防水工事) requires 防水施工技能士 certification under MHLW; missing certification voids commercial waterproofing scope and triggers safety regulation exposure.",
      "whatToCheck": "防水施工技能士 certification per technician (1級 / 2級) · expiration and renewal dates · 防水工事業 scope tracking · MHLW reporting status · prefectural audit history."
    },
    {
      "index": 27,
      "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": 28,
      "severity": "high",
      "pillar": "fundability",
      "pillarLabel": "Fundability",
      "category": "Japan · Cross-border (J-GAAP & prefectural)",
      "title": "Verify 高所作業 (high-place work) safety certification and 労働安全衛生法 compliance",
      "whyItMatters": "JP roofing work above 2 meters requires 高所作業 (high-place work) safety training and compliance with 労働安全衛生法 (Industrial Safety and Health Act). Missing certification creates strict-liability exposure under MHLW labor-safety regulation.",
      "whatToCheck": "高所作業車運転技能講習 / 足場の組立て等作業主任者 certification · 労働安全衛生法 compliance documentation · 労働災害 (industrial accident) records · MHLW inspection history."
    },
    {
      "index": 29,
      "severity": "high",
      "pillar": "fundability",
      "pillarLabel": "Fundability",
      "category": "Japan · Cross-border (J-GAAP & prefectural)",
      "title": "Verify consumption tax (消費税) treatment on installation revenue",
      "whyItMatters": "JP consumption tax sits at 10% standard rate; roofing installation is typically standard-rate but partial-period revenue and deferred-installation deposits create reconciliation gaps.",
      "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 · 簡易課税 vs 本則課税 election."
    },
    {
      "index": 30,
      "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": 31,
      "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": 32,
      "severity": "high",
      "pillar": "transferability",
      "pillarLabel": "Transferability",
      "category": "Japan · Cross-border (J-GAAP & prefectural)",
      "title": "Plan APPI-compliant customer-data transfer notification",
      "whyItMatters": "Japan's APPI (個人情報保護法) requires customers be notified of any transfer of their personal data on M&A; roofing customer data includes property addresses, insurance claim numbers, and inspection photos that trigger PPC obligations.",
      "whatToCheck": "Pre-close APPI privacy-policy review · sample customer-notification letter · post-close notification campaign budget · PPC reporting protocol."
    },
    {
      "index": 33,
      "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": 34,
      "severity": "high",
      "pillar": "pricing",
      "pillarLabel": "Pricing",
      "category": "Japan · Cross-border (J-GAAP & prefectural)",
      "title": "Confirm GC (元請) parent-firm relationship transferability",
      "whyItMatters": "JP roofing work is typically subcontracted by 建設業 / 建築工事業 general contractors; 元請 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."
    }
  ]
}