TREE CARE · Q1 2026 · 34-item pre-LOI diligence checklist · 7 Critical · 16 High · 11 MediumMETHODOLOGY · Acquidex v1.0 · Anchored to AQX-IR-TRC-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 · Independent equipment appraisal before LOI (crane, bucket truck, chipper) · 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 LOITREE CARE · Q1 2026 · 34-item pre-LOI diligence checklist · 7 Critical · 16 High · 11 MediumMETHODOLOGY · Acquidex v1.0 · Anchored to AQX-IR-TRC-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 · Independent equipment appraisal before LOI (crane, bucket truck, chipper) · 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 Tree Care Pre-LOI Diligence
The complete tree care pre-LOI diligence checklist.
Every Tree Care 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 Tree Care 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 · 2 items
Financial normalization
Normalize trailing SDE to 5-year weighted average (storm-year removal)
Why:Storm/emergency revenue presented as steady-state appeared in 58% of deals; storm-year SDE typically 2–4× steady-state. SBA cash-basis underwriting requires normalization — single-year SDE without restatement is the dominant Q1 2026 Earnings Quality fall-through.
Check:Trailing 5-year revenue and SDE by year · NOAA storm-event database overlay · revenue segmentation (scheduled pruning, PHC, commercial, emergency) · 5-year weighted SDE memo · lender comparable.
critical
Earnings Quality
Add back owner-arborist at full ISA-certified arborist + crew leader replacement cost
Why:Owner-arborist normalization is a dominant Earnings Quality finding. Owners performing ISA-arborist field work, commercial relationship management, and crew leadership cannot be replaced at a $65K bookkeeper add-back. Replacement runs $78K–$135K loaded with ISA + crew-leader scope.
Check:Owner time-allocation interview · ISA arborist + crew leader market wage in metro · whether non-owner ISA arborist exists on staff · commercial relationship management hours · field hours separate from administrative.
high
Earnings Quality
02
Category 02 · 1 item
Equipment & capex
Independent equipment appraisal before LOI (crane, bucket truck, chipper)
Why:Equipment appraised at 38% of book value on average when independently inspected. Book value overstates operational FMV by 40–70% on cranes, bucket trucks, and chippers used in storm response and high-canopy work. Lender appraisal will surface gap at commitment.
Check:Independent third-party equipment appraisal · physical inspection of cranes, bucket trucks, chippers, stump grinders · trailing 36-month repair spend by unit · replacement schedule · lien status.
critical
Earnings Quality
03
Category 03 · 2 items
Worker comp + EMR
Verify EMR (Experience Modification Rate) with 5-year carrier loss runs
Why:EMR above 1.0 appeared in 23% of deals. NCCI Class 0106/0105 carries among highest base rates; EMR above 1.0 inflates premium and restricts commercial bid eligibility. SBA construction-exposure guidelines flag high-EMR tree-care deals.
Check:NCCI EMR worksheet · carrier loss runs 5 yr · OSHA 300 log · class-code distribution (0106 vs 0105) · 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. NCCI Class 0106/0105 base rates make this binding.
Check:NCCI X-Mod worksheet 5 yr · trailing 5-year claims · OSHA 300 log · class-code 0106/0105 share · safety program documentation · trailing fatality / serious-injury history.
high
Transferability
04
Category 04 · 1 item
ISA credentialing & TCIA accreditation
Audit ISA Certified Arborist matrix and TCIA accreditation depth
Why:ISA certification concentrated in owner / one technician appeared in 44% of deals. Commercial property management, municipal RFPs, and HOA contracts require named certified arborist; sole-owner certification is key-person risk that compresses commercial contract book at close.
Distinguish steady-state recurring vs storm/emergency revenue
Why:Commercial contract book above 40% supports upper-band placement; emergency / storm revenue is volatile and not forecastable. Revenue segmentation is the core underwriting question.
Check:5-year revenue segmentation by service type (residential pruning, PHC, commercial / HOA / municipal contracts, storm / emergency, stump grinding) · trailing-period mix · multi-year trend · DSCR stress-tested on steady-state-only.
high
Pricing
06
Category 06 · 3 items
License & regulatory continuity
Audit OSHA + ANSI Z133 safety program documentation
Why:Tree work is among the highest-fatality occupations per BLS CFOI. ANSI Z133 + OSHA safety program documentation is required for commercial / municipal contracts; missing program documentation creates strict-liability exposure and EMR inflation.
Check:ANSI Z133 compliance documentation · OSHA training records (10/30 hour, chainsaw, fall protection) · personal fall arrest system inventory · trailing OSHA citation history · safety-program training cadence · trailing fatality / serious-injury history.
high
Fundability
Verify utility line clearance (1910.269) certification if applicable
Why:Utility-line tree work falls under OSHA 29 CFR 1910.269 with specific minimum approach distance and qualified-employee training requirements. Missing certification voids utility ROW contract scope.
Check:1910.269 qualified-employee training records · minimum approach distance training · utility ROW contract list · qualified-line-clearance arborist (QLCA) credentials · trailing utility ROW revenue.
high
Transferability
Verify state contractor licensing where applicable
Why:State licensing varies materially: CA CSLB D-49, CT / ME formal arborist licensing, NYC arborist permit; some states do not state-license tree care. Missing or expired licensing voids scope.
Check:State / municipal licensing per jurisdiction · qualifying agent status (W-2 vs personal) · bonding requirements · license expiration and renewal · CT / ME / NJ / MD specific arborist licensing.
high
Fundability
07
Category 07 · 1 item
Plant Health Care credentialing
Verify pesticide applicator certification for Plant Health Care scope
Why:PHC scope (EAB treatment, Spotted Lanternfly management, fertilization) requires state pesticide applicator certification; missing certification voids PHC service rights and triggers state agriculture department penalty exposure.
Map customer concentration on commercial / municipal / HOA contracts
Why:Commercial contract above 15% of revenue, or single municipal customer above 10%, materially alter Earnings Quality and concentration risk for DSCR stress-testing.
Check:Top 10 commercial / municipal / HOA customers by trailing-12-month revenue · master service agreement assignment provisions · re-bid history · DSCR stress-tested at 20% concentration loss · ISA arborist named-requirement per contract.
high
Pricing
09
Category 09 · 1 item
Labor & subcontractor exposure
Audit subcontractor crew structure and 1099 worker classification
Why:Heavy 1099 / subcontractor use in tree care is widespread but creates worker-classification audit exposure (esp. CA AB5, NJ, MA) and OSHA / ANSI Z133 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 / ANSI Z133 compliance for subcontracted crews · ISA bench across subs.
high
Earnings Quality
10
Category 10 · 1 item
Insurance, bonding & warranty
Confirm GL, professional liability, and umbrella coverage
Why:Standard GL alone does not cover tree-failure liability or property-damage claims from removal work; under-insurance flags forward premium increase or buyer-side gap coverage.
Check:Certificates of Insurance · tree-failure / professional liability rider · contractors equipment floater · umbrella policy · loss runs 5 yr · ANSI Z133 compliance endorsement.
medium
Fundability
11
Category 11 · 1 item
Working capital & supplier
Verify supplier credit terms travel to the new entity
Why:Equipment OEM (Vermeer, Bandit, Altec, Stihl, Husqvarna), parts distributor, and chemical supplier credit lines 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 · OEM service / financing relationships.
medium
Transferability
12
Category 12 · 1 item
Fleet, equipment & capex
Inspect specialty climbing gear and chainsaw inventory
Check:Climber gear inventory with retirement-cycle dates · ANSI Z133 inspection log · chainsaw fleet inventory and maintenance log · PPE inventory (helmets, chaps, gloves, hearing protection) · tree-rigging inventory.
medium
Transferability
13
Category 13 · 1 item
Data & customer intangibles
Reconcile customer database for state data-protection compliance
Why:Customer database (residential property addresses, inspection records, before/after photos) is the primary intangible asset; CCPA and parallel state data-protection regimes apply at change of ownership.
Read the shop / yard / equipment storage lease for change-of-control
Why:Shop, yard, equipment storage, and signage 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 · equipment storage compliance.
medium
Transferability
Phase I environmental on owned or controlled real estate
Why:Tree-care operations historically used pesticide / herbicide storage, fuel UST/AST for vehicles, and chemical mix areas; 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 · chemical storage area inspection · brush / debris disposal compliance.
medium
Fundability
15
Category 15 · 2 items
Technology & operations
Audit job management software (ArborGold, SingleOps, Service Autopilot) 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 customer records is an Earnings Quality continuity risk.
Check:Software contract terms · data export rights · monthly active seat count · trailing 12-month uptime / outage log · API access · before/after photo retention.
medium
Transferability
Map online review velocity and reputation footprint
Why:Google review velocity below 1 per month per metro is a demand-generation finding; sudden negative-review clusters (especially around tree-failure / property-damage claims) predict commercial fall-out.
Check:Google Business Profile review trend · BBB complaints and resolution · trailing-24-month star-rating trajectory · response rate · tree-failure / property-damage complaint history.
medium
Pricing
16
Category 16 · 2 items
Compliance & legal
Search lien filings, UCC-1s, and litigation history
Why:Equipment financing UCC-1s on cranes, bucket trucks, and chippers block clean title at close; tree-failure / property-damage litigation can carry forward liability.
Check:Secretary of State UCC-1 search · county-level lien search · PACER litigation search · state court docket search · tree-failure / property-damage litigation history.
medium
Fundability
Identify Davis-Bacon, prevailing-wage, and Buy America exposure (municipal)
Why:Federally and municipally funded jobs (school-district tree care, military-installation grounds, federal facility, ROW contracts) trigger prevailing-wage requirements; non-compliance is a payback liability.
Check:Federally / municipally funded contract list · certified payroll records · DOL audit history · municipal prevailing-wage exposure separate from federal.
medium
Fundability
17
Category 17 · 1 item
Tax & entity
Review state sales tax nexus and tree-service taxability
Why:Tree-care 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 residential / commercial / PHC / municipal · audit notices or assessments.
medium
Fundability
18
Category 18 · 10 items
Japan · Cross-border (J-GAAP & prefectural)
Verify Construction Business Act licensure (建設業許可) — 造園工事業 by prefecture
Why:Japanese commercial tree-care work falls under 造園工事業 (landscape construction business) under the Construction Business Act; entity-level prefectural license required for commercial scope. Operating outside the licensed scope or prefecture is a strict-liability finding under 建設業法.
Check:造園工事業 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 造園施工管理技士 (Landscape Construction Management Engineer) certification
Why:JP commercial landscape and tree-care project management requires 造園施工管理技士 (1級・2級) certification under MLIT regulation. 1級 is required for 特定建設業 license-holding entities; missing certification voids commercial project management rights.
Check:造園施工管理技士 certification per technical engineer (1級 / 2級) · expiration and renewal dates · 主任技術者 / 監理技術者 appointment letters · MLIT registration · prefectural audit history.
critical
Transferability
Verify 樹木医 (Tree Doctor / Plant Pathology Specialist) certification for PHC scope
Why:JP plant health care and pathology scope requires 樹木医 certification — the JP-side analog to ISA Board Certified Master Arborist. 樹木医 certification is rarer than ISA in the US and commands premium for commercial / municipal contracts requiring plant pathology expertise.
Check:樹木医 certification per specialist · 樹木医補 (Tree Doctor Assistant) bench · trailing PHC scope revenue · municipal / cultural-property contract requirements.
high
Pricing
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 tree-care work involving climbing and high-place operations requires 高所作業 safety training under 労働安全衛生法; missing certification creates strict-liability exposure under MHLW labor-safety regulation. JP fatality framework parallels US BLS CFOI exposure.
Verify consumption tax (消費税) treatment on commercial tree-care revenue
Why:JP consumption tax sits at 10% standard rate; commercial tree-care work is typically standard-rate but partial-period revenue and prepaid annual contracts 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; tree-care customer data includes property addresses 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.
Why:JP commercial tree-care work is typically subcontracted by 造園業 / 建設業 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.
high
Pricing
Tree Care Pre-LOI Diligence Checklist · Q1 2026 — Acquidex Intelligence | Acquidex
