Uncovering the True Earnings of a Pickleball Facility Acquisition Target | Case Study

Deal Snapshot

A buyer engaged us to evaluate the proposed acquisition of a premium indoor/outdoor pickleball facility located in a strong suburban market.

The facility represented a potential expansion opportunity in the rapidly growing pickleball market. At first glance, the business appeared attractive due to its revenue growth, recurring membership base, and favorable market positioning.

As diligence progressed, we identified several items that impacted the target’s sustainable earnings profile. As a result, the buyer gained a clearer understanding of the business’s true operating performance before moving forward with the transaction.

Why Diligence Was Critical

The buyer needed to determine whether the Company’s reported earnings accurately reflected ongoing performance after the acquisition. Therefore, we focused on several key questions that were critical to assessing normalized profitability and transaction value.

These questions included:

Were promotional and discounted court bookings sustainable?
Would lessons and leagues revenue continue after a change in ownership?
Were salary costs understated due to below-market compensation arrangements?
Would facility, utility, and lease-related costs increase post-transaction?
Were marketing expenses artificially low due to discounted services?
Did working capital and cash receipts support reported revenue?

Our Diligence Approach

We performed buy-side quality of earnings and financial due diligence procedures focused on the Company’s historical financial performance, revenue quality, cost structure, working capital trends, seasonality, and proof-of-cash results.

1. Understanding the Business Model

To begin, we reviewed the Company’s operating model, including court rentals, memberships, lessons, leagues, tournaments, retail sales, and other ancillary revenue streams. In addition, the team assessed accounting policies, financial reporting processes, internal controls, and key operating systems to understand how revenue was generated, recorded, and supported by operations.

2. Analyzing Revenue Quality

Next, revenue was analyzed by segment to evaluate the Company’s recurring and non-recurring revenue profile. This analysis helped distinguish stable membership revenue from revenue streams that could be more sensitive to pricing, promotions, ownership changes, or customer behavior.

This is an image of revenue by segment of the pickleball facility acquisition target showing bookings make up 49% of revenue, memberships 34%, lessons & leagues 10%, pro shop 2%, and other income 5% during the trailing 12 months 2026.

3. Normalizing EBITDA

After reviewing revenue quality, the team quantified EBITDA adjustments related to temporary facility disruption, promotional pricing, non-recurring lessons and leagues, salary normalization, below-market compensation, facility and utility increases, and market-rate marketing expenses. As a result, these adjustments provided a clearer view of sustainable earnings and the level of EBITDA a buyer could reasonably expect after closing.

4. Reviewing Working Capital and Cash Conversion

In addition, we reviewed working capital and cash conversion trends, including accounts receivable, inventory, prepaid expenses, accounts payable, and accrued expenses. This review helped the buyer better understand liquidity trends, operating cash needs, and potential post-close working capital considerations.

5. Performing Proof-of-Cash Procedures

Finally, we performed proof-of-cash procedures by reconciling bank deposits to recorded revenue and adjusting for accounts receivable timing differences. Importantly, the analysis provided additional support for the reliability of reported revenue.

Key Findings That Changed the Deal View

Revenue Needed Normalization

Although the Target generated attractive revenue, certain revenue streams were impacted by promotional pricing and discounted bookings. While these promotions helped increase customer activity, they were not considered fully representative of sustainable go-forward performance.

In addition, we reviewed lessons and leagues revenue to assess whether these revenue streams would continue after a change in ownership. This was particularly important because certain programs may depend on specific instructors, customer relationships, or management involvement.

Expenses Were Below Normal Levels

At the same time, the diligence review identified several expenses that did not fully reflect the expected cost structure after the transaction.

These included payroll, facility costs, utilities, lease-related expenses, and marketing. For example, certain compensation arrangements appeared to be below market, while marketing expenses benefited from discounted services.

Consequently, adjustments were considered to reflect a more normalized operating cost structure under new ownership.

Seasonality Was an Important Consideration

The business showed seasonal patterns in revenue and expenses. Understanding these trends was important for evaluating future cash flow, staffing needs, working capital requirements, and post-close planning.

Outcome and Buyer Benefit

Our diligence gave the buyer a clearer understanding of the Target’s sustainable earnings profile and helped distinguish reported profitability from normalized go-forward performance.

The analysis supported more informed transaction structuring and highlighted key post-acquisition focus areas, including:

Revenue sustainability;
Cost normalization;
Seasonality management;
Working capital monitoring;
Facility and infrastructure investment requirements;
Ongoing evaluation of staffing and marketing costs.

Final Takeaway

The target represented an attractive acquisition opportunity, supported by stable revenue growth, strong recurring membership revenue, favorable retention metrics, and above-market court utilization. However, the quality of earnings review showed that reported EBITDA overstated sustainable operating performance. Through detailed financial due diligence, we provided the buyer with a more accurate view of normalized earnings and a stronger basis for valuation, negotiation, and post-close planning.