ROOFING · Q1 2026 · 34-item pre-LOI diligence checklist · 6 Critical · 17 High · 11 MediumMETHODOLOGY · Acquidex v1.0 · Anchored to AQX-IR-RFG-2026Q1 · Sample window 2025-05 → 2026-04 (trailing 12 months)CRITICAL 01 · Normalize trailing SDE to 5-year weighted average (storm-year removal) · EARNINGS QUALITY pillarCRITICAL 02 · Quantify workmanship warranty tail liability and reserve at close · EARNINGS QUALITY pillarCRITICAL 03 · Verify EMR (Experience Modification Rate) with 5-year carrier loss runs · FUNDABILITY pillarLIVE · Pre-LOI verifications a sophisticated buyer should clear before signing an LOIROOFING · Q1 2026 · 34-item pre-LOI diligence checklist · 6 Critical · 17 High · 11 MediumMETHODOLOGY · Acquidex v1.0 · Anchored to AQX-IR-RFG-2026Q1 · Sample window 2025-05 → 2026-04 (trailing 12 months)CRITICAL 01 · Normalize trailing SDE to 5-year weighted average (storm-year removal) · EARNINGS QUALITY pillarCRITICAL 02 · Quantify workmanship warranty tail liability and reserve at close · EARNINGS QUALITY pillarCRITICAL 03 · Verify EMR (Experience Modification Rate) with 5-year carrier loss runs · FUNDABILITY pillarLIVE · Pre-LOI verifications a sophisticated buyer should clear before signing an LOI
Q1 2026 Roofing Pre-LOI Diligence
The complete roofing pre-LOI diligence checklist.
Every Roofing acquisition verification a sophisticated buyer should clear before signing a letter of intent — grouped by category, tagged by pillar and severity, anchored to the Q1 2026 Roofing Atlas.
critical Will cause SBA fall-through or a deal break if missed. Verify before LOI.
high Post-LOI repricing risk. Verify in the diligence period or accept the haircut.
medium Diligence-period verification. Will not kill the deal but compounds working-capital and post-close risk.
01
Category 01 · 3 items
Financial normalization
Normalize trailing SDE to 5-year weighted average (storm-year removal)
Why: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.
Check: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.
critical
Earnings Quality
Normalize insurance supplement revenue to 3-year average
Why: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.
Add back owner-estimator at full estimator/PM replacement cost
Why: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.
Quantify workmanship warranty tail liability and reserve at close
Why: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.
Verify EMR (Experience Modification Rate) with 5-year carrier loss runs
Why: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.
Check: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.
critical
Fundability
Pull workers compensation experience modifier (X-Mod) trailing 5 years
Why: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.
Check: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.
high
Transferability
04
Category 04 · 1 item
Manufacturer status & extended warranty
Confirm manufacturer status (GAF Master Elite / OC Platinum / CT SELECT) is in entity name + transferable
Why: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.
Check: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.
critical
Transferability
05
Category 05 · 1 item
Revenue mix & forecastability
Distinguish steady-state re-roofing/maintenance from storm-insurance revenue
Why: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.
Check: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.
high
Pricing
06
Category 06 · 2 items
License & regulatory continuity
Audit OSHA fall-protection program documentation
Why: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.
Check: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.
high
Fundability
Verify state and local contractor licensing and bonding
Why: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.
Check:State / local licensing per jurisdiction · qualifying agent status (W-2 vs personal) · bonding requirements · license expiration and renewal · multi-state coverage if applicable.
high
Fundability
07
Category 07 · 1 item
Carrier & customer concentration
Map customer concentration on insurance carriers and TPA channels
Why: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.
Check: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.
high
Fundability
08
Category 08 · 1 item
Labor & subcontractor exposure
Audit subcontractor crew structure and 1099 worker classification
Why: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.
Check: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.
high
Earnings Quality
09
Category 09 · 1 item
Working capital & supplier
Verify supplier credit terms travel to the new entity
Why: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.
Check:Supplier statements with payment terms and credit limits · personal guarantee disclosures · written confirmation of post-close terms portability · annual rebate accrual.
Why: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.
Check: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.
high
Fundability
Search lien filings, UCC-1s, and litigation history
Why:Mechanic's liens, customer-claim disputes (workmanship / leaks), and unreleased UCC-1s on equipment block clean title at close.
Check:Secretary of State UCC-1 search · county-level mechanic's liens · PACER litigation search · state court docket search · workmanship-claim and leak-claim history.
medium
Fundability
Identify Davis-Bacon, prevailing-wage, and Buy America exposure
Why:Federally funded jobs (school-district roofing, military housing, federal facility) trigger prevailing-wage and Buy America requirements; non-compliance is a payback liability.
Check:Federally funded contract list · certified payroll records · Buy America compliance documentation · DOL audit history.
medium
Fundability
11
Category 11 · 2 items
Insurance, bonding & warranty
Confirm GL, professional liability, and umbrella coverage
Why: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.
Check:Certificates of Insurance · workmanship warranty claim coverage · fall-protection / professional liability · umbrella policy · loss runs 5 yr · roofing-specific endorsements.
medium
Fundability
Verify surety bonding capacity for commercial / public work
Why:States that license roofing contractors typically require a surety bond ($5K–$25K); commercial work over a threshold often requires per-project performance bonds.
Check:Active state surety bond · bonding agency relationship · single-project and aggregate capacity · commercial backlog requiring bonds.
medium
Fundability
12
Category 12 · 1 item
Fleet, equipment & capex
Inspect fleet inventory: VIN, ladder racks, fall-protection equipment, payment status
Why: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.
Check:Vehicle list with VIN, year, mileage, lien status · ladder rack inventory · fall-protection equipment per vehicle · GPS subscription · trailing 36-month repair spend.
medium
Earnings Quality
13
Category 13 · 2 items
Real estate & lease
Read the shop / yard / material storage lease for change-of-control
Why:Shop, yard, and material storage lease is the operational anchor; landlord assignment provisions and below-market rent (if landlord = seller) are common findings.
Check:Lease assignment / change-of-control clause · related-party indicator if landlord shares ownership · market rent comp · remaining term and option rights · material storage compliance.
medium
Transferability
Phase I environmental on owned or controlled real estate
Why:Roofing operations historically used solvents, asphalt-handling chemicals, and lead-flashing materials; environmental finding can stop SBA financing on real-estate-included deals.
Check:Phase I ESA report (current within 12 months) · UST / AST records · spill or release history · asphalt / solvent storage area inspection · lead-flashing disposal records.
medium
Fundability
14
Category 14 · 2 items
Technology & operations
Audit job management software (AccuLynx, JobNimbus, Roofr) and data ownership
Why: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.
Check:Software contract terms · data export rights · monthly active seat count · warranty record retention · trailing 12-month uptime / outage log · API access.
medium
Transferability
Map online review velocity and reputation footprint
Why: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.
Check:Google Business Profile review trend · BBB complaints and resolution · trailing-24-month star-rating trajectory · response rate · AOB / storm-chaser complaint history.
medium
Pricing
15
Category 15 · 1 item
Tax & entity
Review state sales tax nexus and roofing-service taxability
Why: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.
Check:Sales tax returns 3 yr per state · taxability matrix by state for re-roofing / repair / commercial / storm-restoration · audit notices or assessments.
medium
Fundability
16
Category 16 · 10 items
Japan · Cross-border (J-GAAP & prefectural)
Verify Construction Business Act licensure (建設業許可) — 屋根工事業 by prefecture
Why: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.
Check: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.
critical
Fundability
Confirm 防水施工技能士 (Waterproofing Technician) certification for waterproofing scope
Why: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.
Check: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.
high
Transferability
Re-cut financials under J-GAAP goodwill amortization
Why: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.
Check: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.
critical
Earnings Quality
Verify 高所作業 (high-place work) safety certification and 労働安全衛生法 compliance
Why: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.
Check: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.
high
Fundability
Verify consumption tax (消費税) treatment on installation revenue
Why: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.
Pressure-test the long-term employment cost structure
Why: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.
Check: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.
high
Transferability
Map the relationship-banking structure and CoC consent rights
Why: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.
Check: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.
high
Fundability
Plan APPI-compliant customer-data transfer notification
Why: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.
Check:Pre-close APPI privacy-policy review · sample customer-notification letter · post-close notification campaign budget · PPC reporting protocol.
high
Transferability
Inspect 商業登記 (commercial registry) and 印鑑証明 (seal certificate)
Why: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.
Check: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.
Why: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%.
Check:GC relationship list · 元請 contract structure · master subcontract agreement assignment provisions · written GC consent to assignment · trailing-period GC concentration.
