Yet Another Value Podcast - $CBZ: stop the buybacks and restart the M&A flywheel? | Reference Equity

Episode Date: July 14, 2026

Ryan Bunn (Reference Equity) has a public proposal for CBIZ ($CBZ): stop buying back stock at 9x earnings and restart the M&A flywheel that compounded revenue at 13%/year and took EBIT margins from 9% to 14% over the last decade. For someone like me who has always been a sucker for share buybacks, "stop the buybacks and issue equity" lands like a knife right in the gut, so I make him defend every piece of it.We get into whether the $2.3B Marcum deal (the largest accounting acquisition ever, with the stock down ~70% since) deserves a mulligan, whether the multiple got crushed by 3.4x leverage or by AI headline fear, whether AI lets the Big Four come downmarket and eat CBIZ's middle-market lunch (or lets superstar producers hang their own flag), and whether long-term investors would really put primary equity onto the balance sheet at no discount. Ryan's math: the market prices credit risk, small 6-9x EBITDA bolt-ons restart the compounding machine, and a delevered, re-rated CBIZ has 100%+ upside.Ryan's Restarting the Flywheel site (proposal + deck): https://cbizflywheel.com/This episode is sponsored by AlphaSense. Most AI tools are very good at sounding right; the summary is clean, but can you trace it back to the filing, the transcript, the exact passage that drove the answer? AlphaSense owns the content (over 500 million curated documents, from broker research and expert transcripts to filings and earnings calls) and the retrieval layer on top of it, so every answer links back to an exact, verifiable source. Try a free trial at https://alpha-sense.com/yavpChapters:(0:00) Intro: an activist pitch to STOP the buybacks(1:15) AlphaSense(2:31) What is CBIZ ($CBZ)?(5:01) Ryan's proposal: restart the M&A flywheel(7:44) Buybacks at 9x earnings vs. getting back to M&A(10:38) Post-Marcum, are there even deals left to do?(12:52) The AI risk: offshoring and the Big Four coming downmarket(19:24) Does AI let superstar accountants hang their own flag?(23:41) The Marcum deal: mulligan or strategic masterstroke?(28:59) Private equity competition and winner's curse(31:38) Valuation: 9x free cash flow at 3.4x leverage(40:00) Does delevering actually re-rate the stock?(45:47) Management, the board, and alignment(49:58) Why issue equity now? The FMC example(56:57) Ryan's real ask: end the muddled capital allocation(57:38) WrapRyan Bunn / Reference Equity: https://cbizflywheel.com/Links:Yet Another Value Blog - https://www.yetanothervalueblog.comSee our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimerProduction and editing by The Podcast Consultant - https://thepodcastconsultant.com/

All right, and hello, welcome to yet another value podcast. I'm your host, Andrew Walker. I'm here at my parents' house in New Orleans, so I'm doing an off-site podcast today. But I think I've got a great podcast for you today. It is Ryan Bunn from Reference Equity, and he's got a really interesting proposal. So we're going to be talking about C-Biz. The tipper there is C-B-Z. And he's got a website where he's pushing them to change their capital allocation up. I'll include a link to the website and the share note so you follow it. But basically, he thinks the company is buying back shares, and he thinks they should stop and they should restart their M&A flight wheel,

which they have historically done pretty successfully until maybe the most recent deal, but we'll talk about all that. And then for those of you who know me, you know, I am a sucker for share buybacks, though the shine has come off on them for me recently. So I've got some, you know, instinctively, you say stop the share buybacks and issue stock,

and I say, oh, so you're going to hear that. I might even make that sound on the podcast. So we're going to get to the, and it's a wide range of discussion. We're going to talk capital allocation. We're the business. I mean, there's a lot of AI risk, in my opinion here.

Not that the risk is real, but there's a lot of AI headline risk, and it is interesting about where it goes. But what am I doing? I'm rambling. I'll save the rest of my random rambling for my random ramblings this month. We're going to get to the podcast with Ryan in one second, but first, over to our sponsors. Today's podcast is sponsored by Alpha Sense. Here's something I've been thinking more and more about recently.

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because the AI said something that wasn't true, that I didn't verify, that I trusted and did not verify, and that I can't source. And it sounds minor now, but, you know, you work with AI all day. It's easy for one thing to slip through, and it's scary. So what's the solution? Well, Alpha Sense is the AI platform built specifically for this. They own the content, over 500 million curated documents, from broker research and expert transcripts to filings and earnings calls,

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All right, hello, welcome to yet another value podcast. I'm your host, Andrew Walker. With me, today I'm happy to have on for the first time, Ryan Bunn from Reference Equity. Ryan, how's it going? It's going great. Thank you so much for having me. I'm really excited for an interesting topic today, but we'll get there one second. First, disclaimer, remind everyone, nothing on this podcast is investing advice.

You can see a full disclaimer in the show notes and at the very end of the podcast. That out the way, Ryan, we're going to be talking about C-Biz today, but before I let you explain what C-Biz is, I'll also note that you have done a deck and a website for the company because you've got a proposal for them that we're going to discuss in depth in the podcast. But I'd be remiss if I didn't tell listeners, hey, I've got a link to the deck to the website and the show notes. So you should go look at that if you want to right now or if throughout the discussion you think that's interesting. You should go check out the full, especially the deck because I think the deck is quite comprehensive. So, Ryan, that out the way, the company we're going to talk about today is C-Biz. And even though it is C-Biz, the company, the ticker there is C-B-Z.

So, you know, if you're kind of Googling around, you might have, it took me a few times. I was like, why is nothing popping up? But the company is C-B-B-B-Z or C-BZ, if you want to go with the ticker. What is C-BZ and why are they so interesting? Yeah, so I have a long history with C-Biz. I first met the CEO in 2019, visiting their headquarters a number of times, have been following the company coming up in eight years now. And so C-Biz, a fairly simple business.

they provide professional business services to middle market customers. So these services include tax, audit, accounting, payroll, benefits services. So anything that you might need as a CFO or HR professional at a middle market business, C-BIS can provide to you. Today, they're present across the U.S. They operate out of 23 major metro areas, 9,500 employees, and they serve over 130,000 clients. And just some quick industry context. So they are in the industry that's dominated by the big four.

So you've got Deloitte, PWC, E&Y, KPMG. Number five through 20 in this industry are considered tier two players. C-Biz is number seven. So they are a leader in the tier two, which is important, you know, as I'll kind of get into their differentiation and what makes the company such a high-quality business. Perfect, perfect. And I just, you know, the, well, we'll get there in a little bit. So why don't we start with, there's a great overview. What don't we start with, you know, the first question I like to do is generally, what are you seeing that the market is missing? But I think the answer there kind of starts to relate to your, to the proposal that you've laid out to the company. So why don't we just dive into what is the proposal you're you've laid out to the company and kind of what are you pushing them to do? And then we can start talking from there. Yeah, so, you know, at the highest level, the business today, the way they're allocating capital is they are paying down debt and buying back stock. And I'm proposing to them that they stop buying back shares and either use the capital to pay down debt to D-Lever or return to M&A. And, you know, I've titled the campaign I'm running restarting the flywheel. And so I'll give you, you know, just the quick C-Biz flywheel. and what had made this business such an amazing compounder over the last 20 years.

So, C-Biz, it's a people business, their assets are simply their employees, and they have a great culture. So they're able to attract and retain excellent talent. From this, they provide excellent client service. So they have over a 90% client retention rate. Most of their client losses are actually companies being purchased by private equity or public entities and moving up into the big fort. and they're in an industry that has stable recurring revenue and cash flow.

So tax, audit accounting, these are non-discretionary spend. 72% of their revenue is recurring. The other 28% is more tied to, you know, kind of additional services they can provide to their customers. But ultimately, you have this, you know, well-run business with motivated employees providing a great service that you can underwrite for years into the future with the cash flow. And over the last 20 years, CBIS has taken that cash flow

and acquired smaller accounting businesses across the country. This is how they've built their position as number seven in the industry and how they've driven a lot of growth. So that flywheel, taking the cash flow, reinvesting in an M&A,

has a lot of the business of the last 10 years to grow revenue at 13% per annum. Their margins expanded from 9 to 14% on the EBIT line. This is nearly 20% profit growth. So the business itself and the business model they run is an excellent compounding machine. The issue today is they're over levered at 3.4 times leverage and they're buying back shares,

which is accretive at these levels. They're trading at nine times earnings. But in my view, it is not as accretive as getting back to M&A and beginning the compounding cycle again. So that's what I'm encouraging them to do. Okay, perfect. That's great. So again, I think this really interesting on a couple areas. First, like, share re purchases on a whole have kind of lost their shine for me over the past five years. You know, I've seen one too many companies buying back stock at, let's just use Bedbath and Beyond, right? They're buying back stock at 45. And then two years later, they're issuing as much stock as they can at 45 cents, right? I've seen that happen one too many times. But it was also like the first thing when I see an investor saying, hey,

stop the buybacks and issue stock. Like my first instinct was like put a knife right into my gut. I was kind of nervous. But I want to break down each piece of your component. Yep. I guess the first piece is, the first issue you're going into is you've got this management team and they're pretty adamant, right? As you mentioned, our stock is trading at nine times earnings. We think we're too cheap. We think they're taking all their cash flow and this thing, it is capital light. It does their awful lot of cash flow. They're taking their cash flow and they're de-levering a little bit and they're buying back stock. And you're saying, hey, let's go and issue shares. I guess my question is like, as you said, they've done a lot of M&A.

If they're sitting here and telling you our stock is the best use of our capital at these levels, and by the way, that's kind of against their self-interest because they get paid more if the company grows, like, isn't that screaming to you that these guys know, these guys see what they're getting offered, their stock is the best value? So that would be my first pushback. Yeah. And, you know, this, as you mentioned, you know, there are many issues with buybacks. And, you know, a question is, you know,

when has the buyback been accretive, right? So this is a, the management team was buying back shares in 2025 at 72 at 67, at 52, you know, there happened to be a few months, February through, you know, June of this year where they were buying back at six or seven times earnings. Those are accretive buybacks. In aggregate, what they've done over the last 18 months is not particularly accretive based on where they're trading today. You know, as I think about the opportunity over a longer-term basis, you can simply compare the buyback return to what they've done with M&A historically. So on an unlevered basis, their M&A returns have been roughly 9% over the last 10 years. If they lever that return to, say, one-time's leverage, all of a sudden, you can get into

double-digit M&A returns. When you compare that to a buyback, any buyback over 10 times free cash flow, in my view, is either a tie or less accretive than doing M&A. So to the extent that their shares will continue to trade at seven, eight, or nine times free cash flow, then they can argue that mathematically it's more accretive. But as soon as you get into a double-digit earnings multiple, it's not the best use of their capital. Well, let me go to the next one. So historically, this business has been grown over 20 to 25 years through lots of M&A,

with the headliner being the recent Markham application. acquisition that they did about two years ago. It closed about 18 months ago, something like that. I guess my second thing would be, hey, this is a classic private equity roll-up story, kind of, right? They went and they bought lots of things in an industry. And now, as you mentioned, they're the seventh largest player. And, you know, there's kind of the largest players, your KPMGs, your Deloits, and then

there's five through 20. Well, they're at number seven. You know, when they were starting from nothing, there were lots of acquisitions. But I guess the next question will be, you know, postmark them. Are there really acquisitions out there? for them, right? Because are they going to go buy this, what, like Grand Thornton's probably the sixth largest kind of firm, right? Are they going to go buy them? Or is there really synergies to continue to buy? I'm sure there's like little onesies and twosies where they're

buying really small mom pops like a really good account or something. But I guess the second question, maybe looking at the landscape and saying, hey, when we were, you know, number 30, we could go buy. But now that we're number seven, maybe it's just like a different strategy going board. So in my opinion, this is the beauty of this industry and the opportunity that CBIS has. So the ability to redeploy capital into M&A at good returns is very valuable, right? Many businesses have no capital allocation opportunities to do this. CBiz could triple the size of their business, and they would still not be as large as KPMG. There is a huge tale of accounting firms out there, and it's my view that the industry

consolidation will actually accelerate. Right now you have, you know, smaller, maybe private equity-backed players who are going to be struggling under debt as well. You have founders retiring, not knowing what to do with their businesses. And any AI disruption, you know, is only going to make small subscale players less competitive in this space. So in my view, you know, in an age of AI disruption, players that are well capitalized who have the financial flexibility to do what they need to do in a new AI world are positioned to massively benefit. Well, you mentioned AI. So let's go there next. I'd love to come back and probe the capital allocation question with you, but let's go next.

I mean, I think the first thing, an investor who's listening to this podcast today, you know, July, what is July 9th, 2026, the first thing they're going to think is accounting. audit, all the sort of stuff, probably audit less than time. But these are things that are right in the AI crossairs, right? And particularly, you know, I was reading some calls to prep for this and they get asked about offshoring to say, hey, last year we were 6% offshore. By the end of this year, we're going to be 10% offshore. And within a few years, we think we're going to be 20% offshore. Well, when I hear a business say, hey, we're shifting more to offshore, what I hear is, oh, this business is vulnerable to AI risk, right? Like anything that's getting offshore, that is getting AIed now.

on just shut down mechanical Turk, which is not one for one, but very similar. I guess my the overarching question, Karen, we can get in specifics, but how do you think about the AI risk here? Because I know in your slides, you call, hey, you guys shut off the M&A flywheel and the stock went from, you know, approaching triple digits to today it's in the mid 30s. And you make that one for one correlation. And I do hear you. There's a little bit of that. I think there's a little bit of Markham has they had, they've even admitted, they had some talent drain and some clients turnover they weren't expecting. But I also think like if you laid this chart against like into it or just the SaaS universe in general, I think a lot of the hit has been, hey, you know,

this used to trade it 18 times because we thought this was recession resistant. You know, everybody would always need accounting needs. And I think a lot of the fear and a lot of the hit has been, oh my God, what is going to happen with AI going forward? So I threw a lot out there. I'd love to just hear how do you think about AI as a release to C-BIS? Yeah, you know, It's absolutely a risk. You know, I will say, and we'll circle back to capital allocation later, but being at three and a half times leverage, when there's this existential risk is not where you want to be, right?

You know, their share price reaction is a highly leveraged version of many of the other businesses that you mentioned as well. You know, I'm in Denver, Colorado. I'm not in Silicon Valley. I'm not going to give you, you know, an AI answer. I don't know where this is going to go for the business. The way I've been thinking about this is there are two things going and see business favor. First, they're in effectively regulated industries.

You know, businesses cannot audit themselves. CFOs, particularly in the middle market, you know, they want a trusted advisor who they know to tell them that their taxes have been filed appropriately and that there's someone, you know, helping them out with these regulated and essential business services, I guess. The other way I've been thinking about AI is, you know, even before AI emerged, I think investors were starting to appreciate the value of customer connection. And so, you know, who is best positioned, you know, to support clients and maybe lead, you know, the implementation of AI workflows? It's going to be the businesses that actually work with these clients every day. So, C-Biz with their, you know, 9,500 employees and 130,000 clients, these are small,

clients, they're not going to be spending millions of dollars on AI. These are CFOs that aren't going to be simply automating all their back office processes by downloading something from GitHub. So, you know, I like, if I'm going to take, you know, the maybe the opposite AI bet, I like it to be with a business who's in front of their customers providing an essential service. And, you know, maybe at least in the first iteration, can capture some of the margin if they start to implement AI. And in the second iteration, help their clients, you know, maybe implement this as well. No, look, I think you're spot on to something there, but let me try to push back a little bit here because I do worry, you know, you've got, as you said, this is in the middle tier of the accounting firms. They target midmarket. And when I go, when I listen to some of their calls, they said, hey, we think we're going to be an AI beneficiary because we're going to be able to invest a lot in AI, which, you know, if you think about a mom and pop that it might be competing with, the mom and pops won't be able to. So we're going to be able to go steal a little bit kind of down market or in smaller, markets just because AI, you know, we can automate a lot of the back end. So maybe our top

guys have a little bit more time. So each of them can take on one or two more clients. So they can kind of grab some smaller clients. And, you know, that's roughly right. And I hear that. But I guess my fear is with AI, if we ignore the, hey, everybody's just kind of an AI agent, run all their taxes and all their, which, you know, I think that's kind of out there. My fear with AI would be a lot of fold. But for these guys in particular, it would be, okay, if they're right on that, well, why couldn't KPMG or Deloitte or one of the big four, why couldn't the same apply to them, right, where they say, hey, this $500 million company based in Iowa, before it wasn't really worth our time to go after them. But with AI, because we've got so much more time and we

can automate so much, now we can go after them. So yes, CBIS can go to the firms that, the companies that, you know, firms 21 through 5,000 were targeting, but all of a sudden, KPMG is going for the companies that firms 5 through 20. 20 we're targeting and you're kind of seeding sheer to the bigger guys who can use AI more efficiently. So that would be one side of the worry. I'll let you respond and then I've got the other side of the worry. Yeah, sure. So I think there may be two things to unpack in there. The first is, as you're describing this, you know, you're ultimately describing industry consolidation, right? If number five through 20 can service the customers at 20 through 200 use the

service, you know, there's going to be massive consolidation there where you can put the very smallest, mom and pops out of business. And as you described, potentially, the big four comes down. You know, the big four, it's kind of a unique industry in and of itself. So, you know, the big four have brand recognition that allows them to charge a premium for their services. It makes them extraordinarily profitable. You know, and for a company going public in the United States or globally, you want a big four name as your accountant and you don't care if you pay pay 20% more. Because at the end of the day, it's a million dollars, it's $2 million, you can pay that. I actually think if AI starts to reduce price, maybe, it will hurt the big four first.

I think they're going to be much more hesitant to cut their price to attack these middle market clients because of the profit pool that they serve leveraging their brand. That's great. And let me go to the other side of the coin. And I'll come here from a different angle. You know, the worry with a lot of these businesses is these are the old Warren Buffett thing, hey, the talent walks out the door every night, right? Like, if you are, whether you're KPMG or Markham, like, the guy who is the head of your accounting, he's like the moneymaker. He's who you see that people are going. And if he left, like, he'd probably be able to pull a lot of clients with them, right? So when I look at, let's use Markham, you know, number five, I worry that

why does an account join, why does a best account join Markham? Markham's going to even, salary, but they also, they want the back office. They want the support, right? My secondary worry with AI would be, hey, as AI makes a lot of the support that, you know, the small mom and pops could not do on their own, that that you needed to go to a mark on market, to get the scale, to get the support, that type of stuff. AI might make that a lot easier. And then all of a sudden you're left with, hey, the superstar accountant is looking and saying, hey, I can stick with, you know, the number five firm, or I can go be my own firm, hang my, own flag, my clients come with me and all the back office stuff, all the support stuff that

they were giving me, I can do that on my own with AI, and I can keep 100% of the proceeds. And even if they don't do that, you know, they're always going to Markham saying, hey, I am the star, the clients are coming for me. I want a bear cut of the revenue. I want more than my share. So I just really like the economics are kind of pulling more towards the producer, the actual superstar versus the firm level. And I'll just build on to that and say, you know, it's not.

It's not lost of me that private equity is rolling up a lot of the mid-tier players. You've got CVS here, I think Baker Tilly, Grant, all of them. But it's not loss of me that the big four are partnerships and I've always remained partnerships. And I think part of the reason is, hey, all the economics accrues to the guys who are there who are actually producing. Once you start having kind of financial partners, the economics just don't work because that accountant sit around and say, who's this guy?

Why are we giving them any of money? We're doing all the work. So I threw a lot out with you, but I'd love to hear how you think about those risks. Yeah, you know, it's interesting because CBIS has been dealing with this risk for over 20 years. I mean, you're right, you know, private equity roll-ups of people businesses, whether it's doctors or vets or many other industries in this way. You know, it is often challenging to retain the people. In this case, I actually think there's a dynamic where the suite of services that CBIS offers, it's more than an individual producer can replicate themselves.

and it allows C-Biz to actually be as a firm, a strategic partner to their clients. So, for instance, a middle market business, you know, I touched this before, but they might use C-Biz for their tax and accounting, and maybe that's one person that they know. But if they're going to open a facility in Mexico, they can call C-Biz and have someone talk to them through customs and other issues with that. If they're going to do an acquisition, C-Biz has a valuation and a due diligence practice. If they're going to do digital assets, this is one of the capabilities. that C-BIS picked up in the Markham acquisition. There's a whole suite of services that

these middle-market businesses need as they grow, and it is, you know, it's a suite of services that the individual accountant cannot provide. So I actually think over time, you know, serving this middle market is going to become more institutionalized in the way that C-Biz has built their business, and it's less about the individual producers. And I imagine before the culture they have is a great culture. People like working there. Historically, they've, you know, paid 75 to 85% of their revenue out in terms of comp. But ultimately, SeaBas is a great place to go. If you're a little burnt out at the big fort, maybe you've gotten paid for many years, you enjoyed it, maybe you're not going to make partner there. And you're getting tired and you want to go, you know, have a family, have a great life, service clients, have the suite of capabilities behind you, that they've kind of crafted a nice niche, I believe, as to a place where talent wants to settle down. You know, they've, if you look at their investor decks, they, on like two of the 20 pages of their investor debts, they've got a bus and the side of the bus, you know, it's a bus ad for C-Biz. And I laugh, but I see that bus twice a year driving around midtown Manhattan. And as soon as I saw it, I, uh, I knew exactly what the, what it was.

Let me ask you a different question. Your argument is, hey, we want them to go restart the M&A fly bill, right? And I definitely hear you until recently that MNA flywheel had served them really well, right? But we might as well talk about the Markham deal, right? The Markham deal was done about two years ago. $2.3 billion deal cash in stock. I think it was the largest accounting deal ever if I can trust my AI overlords who I use to help me prep for this podcast, you know.

And they'll admit it. You read their earnings calls and they say, look, especially at the back half of last year, we had more client attrition than we thought. We had more a little internal attrition than we thought all the sort of stuff. And we're working through that. And they are saying our numbers in the back half of, 26 will be better in part because we're kind of annualizing that number right there. They're starting to say that's behind them.

But I guess who just says, you know, they did this deal. It levered them up, as you said. The stock is down 70% since they did it. Margins have compressed. They had this. Would you go, would you, if you were them, would you do the Markham deal over? Or if they were kind of given a mulligan, do you think they'd take a mulligan? You know, that's an interesting question.

And I don't know, on the one hand, from from our stepping off point today, You know, it's a fact they did it. So we don't necessarily need to relitigate it. But I think, you know, as we as we talk about capital allocation, you know, I have a different view than most. You know, when I think about the way they should allocate capital, you know, you look at the potential returns of any decision, but you also have to look at the risk and the strategic fit to the company. So when you think about the Markham deal, it brought CBA as a presence in New York City where they were not previously. it added a lot of scale to the business, and it added a number of new capabilities. I mentioned digital assets, cryptocurrency, some new services they can cross-sell into the rest of the country. So strategically, this deal is hugely beneficial for the business, especially as you think about the need to potentially invest in AI, be a thought leader nationally on some of these new and emerging topics.

It brings them a lot of talent. and kind of it brought them to number seven at the upper end of tier two. And I like that competitive position much more than being number 12 or 18. So strategically, I see the fit. The returns, you know, are not where they want them to be. And, you know, when you think about the share price, the issue, the biggest issue to me with the deal was just the way they financed it. They did actually finance it with, I believe, 13 million shares of stock. Well, stock was trading, you know, above 65 at the time.

But they just took on too much debt for the size of the business. I believe if they had sold more stock at the time or if they had paid down debt over the last year and a half as opposed to buying back shares, the share price would be, you know, at a different position and you'd be looking forward to an exciting future. Well, so I can fully hear you, but two things to point back on there. One, like, yes, obviously the stock has gone from 60 to 30, right? Obviously, if they had sold more stock or done less, it would be better because then they would be less levered off than the stock. The stock's going to know.

But I guess the two things I'd kind of push back in there is I definitely hear you. It works strategically for them. And I don't know if the stock price, you know, the drawdown from 65 to 35 or whatever, I don't know how much is caused by SaaS by the AI apocalypse. I think a lot is actually AI apocalypse versus kind of Markham acquisition being disappointed. But the first place is going is, hey, the. just did this huge deal that you said strategically placed in a lot of way, and you're arguing for restarting the M&A flywheel, right? And I kind of look at it and say, well, the purpose of the market deal was to fill out a lot of the strategic holes they had, right? So you've kind of got the

strategic holes box check. You've got the scale box checked at number seven. And they say, by the way, the market market market machine, it doesn't seem like it went that great. So I kind of look at all those and say, all right, the strategics of what they said they were doing the marketable deals are checked. This is integrated, but it doesn't look like it went that well. So why do we want to kind of reload the gun and let management go, whether it's elephant hunting or squirrel hunting, you know, elephant hunting, big M&A or squirrel hunting, just lots of, but why do we want to let them reload that gun? Because like, we've kind of already checked the strategic boxes. We're scale. We're in New York City. And we've already seen this major team maybe can't integrate, maybe

overpaid, maybe it didn't work. So why do they kind of have the right to go do this again? Yeah, I mean, my view is that, you know, there's not another kind of elephant out there that they will be going after. So the purpose of this would be to get back to, you know, the other 79 deals they've done over the last 20 years, which were small deals done between six and nine times EBITDA, very accretive, easy to integrate. You immediately start cross-selling into these businesses with your suite of capabilities. And that ability to deploy cash flow in that way is what enables the business to compound capital for shareholders. So, you know, I'm not advocating for them to go by the number eight or number nine player. The point is to go by one of,

you know, or many of the other hundreds of smaller players who are increasingly competitively disadvantaged and willing to sell. You know, the other thing with buying is it depends how competitive the landscape is, right? If you are the only natural buyer for a company, well, you're probably going to get to keep the majority, the vast amount of value from the synergies because no one else has them. Here, you know, you look and say, hey, for the past 20 years, these guys have done a nice job with Bolton's. But you look at the landscape today, and we mentioned a lot of the mid-tier firms are private equity backed and are aggressively, aggressively rolling up players.

So I do wonder, you know, the fact that this space has gotten so hot and heavy with private equity players, are we going to be able to really realize the same equity returns going forward from M&A when, you know, maybe 15 years ago it's a much sleepier business. people aren't flapping leverage on. Today, it's like, hey, every time any mom and pop raises their hand and says, we're for sale, there's four private equity back players in the room right away going for it. So I guess like, is there a secret sauce here that says, hey, we're advantage? Are we kind of just the fifth guy in the room and high bitter wins? We get into winners curse, all that type of stuff. Well, and this again goes back to the culture, which is actually the unique and differentiating

aspect of C-Biz. So the reason many companies sell to them is because C-Biz, you know, they're not looking just for synergies. They're not looking to just slap on scale and sell to the next private equity player. You know, historically, they've acquired with cash. They're able to give you stock, earnouts, retain all your employees. So if you're a founder of an accounting firm and you've got a dozen employees, you know, you're putting their careers at risk. If you go to the private equity route, you know they will have a great home at CBIS. And so, you know, C-BIS has been the acquire of choice in the industry. Today, they've jeopardized that with their high level. and the client share price. It's not interesting getting C-BIS shares if they're going to go down

50%. But overall, I actually think they're very favorably positioned. And as interest rates, you know, are up over the last few years, it just makes the math harder for private equity. And, you know, for C-Biz, someone who can purchase with equity, the math is the same. So actually, and again, this is why I'm, you know, kind of choosing this moment to really push the company to getting back to their roots because it's my view that the M&A opportunity over the next three years is going to be enormous. If interest rates go up, you are going to have these PE backed players that are potentially selling in distress. Well-capitalized businesses, you know, who can take advantage of dislocation are going to do wonderfully. And today's C-Biz is a fragile business with a balance sheet and they don't

have the opportunity to do that. Let's talk to the stocks in the mid-30s as you and I are talking. Let's quickly talk about, we've kind of, again, the company is buying back shares because they say they think the issue is kind of than they think it's undervalue. Obviously, you've got a position. You're pushing them to go restart them in a flywheel because you think that's, how do you think about valuation here? And I guess we can branch down into two firms. How do you think about valuation on kind of the standalone path that they have laid out? And how do you think about valuation if they kind of follow the path that you're laying out where they go and restart the M&A flywheel? Yeah, that's a great question.

So, you know, today at nine times earnings or nine times free cash flow, you know, there's kind of an open question. Is it a good stock to buy? And the issue is at three and a half times leverage, do you like this risk? Right. Today, every time, you know, oil spikes, there's inflation worries, interest rates might go up and see business stock trades down. So, you know, as an equity investor, I don't really want to be betting on interest rates. And, you know, this is the problem I have with the business tonight. If C-Biz had lower leverage, I think the valuation would be screaming cheap.

If this was a business with no debt at nine times free cash flow, you would be, you know, buying shares hand over fist because you have, you know, the optionality going forward with this business. You know, I'm a shareholder today because I believe that they will pay down the debt and fix the business, you know, hopefully before anything disastrous happens. And so I view it as an attractive opportunity. And it may be pivoting for the capital allocation. So with a business trading at nine times earnings, there's a clear path to compounding your capital at double digits. So if CBIS simply buys back shares for the next two years, say, they will

repurchase, you know, 11% of the business each year from nine times earnings. And that should give you a 22% return, you know, over the next kind of 21 months, if that makes sense. And so basically what you're going to have happened is share count goes down, earnings per share go up, and they go up 11% a year roughly. If your multiple stays the same, you'll earn that 11% return. And the way I've laid that, you know, I'm assuming that's what you think when you think about the accretiveness of buybacks. Is that fair?

You know, I think if you put C-BIS management, I think they would probably push back and they say, well, you know, we're talking mid-single bidjo growth as well. So we're buying back at 11%. We do that for two years, and we grow 5%. So, you know, we grow 5% and, by the way, our stocks undervalued. And as the market comes to see, oh, this is not AI roadkill. The multiple, they're going to grow 5%. The muscle expands from 9 to 12.

So I think they would paint you a picture of 11% free cash flow growth. Yes, absolutely. Plus 5% organic growth plus 5% multiple expansion gets you to 20% annualize over that time. I think that's what they'd say. But yeah, yeah, I think you laid it out correctly. Look, that's very fair. I mean, and the reason I'm a shareholder is because, you know, That's my base case, right? This is, that's close to what they're doing. They're not going to buy back, you know, 11% of their shares because they are simultaneously paying down debt. That is less accretive because their debt, you know, costs six and a half percent on the interest line. But ultimately, you know, the combination of buybacks and debt pay down they're doing, I think gets you to kind of an 8% return, not the 11. And to your point, you can add five for growth. And then if there's a multiple expansion, you're comfortably in,

you know, kind of this 13% plus compounding range from here. So, you know, as a starting point, I think that's, you know, that's a pretty good base case. You know, we're kind of ignoring the risk of a, but maybe that's why it trades at nine times free cash flow. So, you know, I find it to be a pretty attractive buy in that sense. But I want much more from C-Biz, I guess. So, you know, we kind of laid out that math. If you think about them, say, instead of buying back shares, if today they take all the capital they're going to buy back with and deploy it via M&A, and they make a 9% unlevered return on that. This compares to your buyback return of 11% today, right?

So it's not as accretive. But you have a number of other benefits that, in my view, actually make that little 2% delta irrelevant. And, you know, just for context, if you compound that, you know, 13 versus 15%, over the next two years, you know, you're talking a couple dollars on the share price, right? It's not really going to move the needle which way they choose to go there. But if they were to buy businesses instead of buying back shares, every business they buy with their cash flow brings EBITDA to the business. So they accelerate their de-levering.

When you accelerate your de-levering, you're going to get more multiple expansion because you're reducing the risk in the business. You know, risk is real. The interest rate risk is real. So the faster they get out from under that, the more multiple expansion they'll see. As they acquire businesses, their EBITDA will grow faster. Instead, you know, when I talk to people and say, yes, EBITDA grows 5% at this business. Who cares, right?

I mean, you know, you've got AI winners, you know, who are tripling their EBITDA every year. 5% EBITDA growth isn't exciting. If they buy companies, all of a sudden you have a business that's growing EBITDA double digits. What's the multiple worth there? you're going to have more multiple expansion because you just have a faster growing business. And then strategically, you know, their employees will have more opportunities to manage people as you bring businesses in. You add capabilities. You're rising up the list of the mid-tier players.

You're enhancing your competitive position with M&A. So, you know, it's all those more qualitative pieces of capital allocation that to me are essential. And if you think about this business five years from now, if they continue trading at nine times free cash flow, they can buy back 50% of their shares. And so as a shareholder, your earnings per share will double. But you're going to still own a business that has a $2 billion market cap and three and a half times leverage and grows EBITDA. Whereas if you do M&A, if you think five years from now, you're going to have a business that has doubled their EBITDA, is growing EBITDA double digits, has completely de levered, is leading, you know, in their competitive landscape and has another five years of growth ahead of them. And so when I picture these scenarios, I think if you buy back

stock, your multiple is going to be nine, ten, eleven times earnings. But when you get back to this flywheel, they're going to trade at 15 or 16 times earnings again. And you have well over 100% upside on your shares. So, I mean, a lot there. I guess the first thing, like, it seems to me like, because you say they're going to grow EBDA. And yes, if they start issuing equity to grow EBDA, they're going to go EBDA. But I mean, at no point that we started talking about EBDA per share, right? And EBDA per share is a little bit of a funky metric. But I think what they would argue is they're basically following the Terodyne mob, right?

Where, hey, our shares were rich a few years ago and we're doing M&A like crazy in issuing stock. And now our shares are deer, you know, and they're cheap. So we're buying back stock, right? if we go and start issuing stock, and by the way, we're issuing our stock at nine times free cash flow to kind of buy other businesses at nine times free cash flow after synergies, like we're buying worse businesses than us with our shares, which are cheap. That's not super great and we're not kind of shrinking. We're not growing to even offer a share, free cash flow or share, whatever you want to call it,

because we're issuing the stock with that, right? So I think they'd push back there. I think the other places they would probably push back, I would probably push back. you're really assuming multiple expands because leverage comes down and because they're just doing this inorganic growth, right? Like that's a huge assumption on your end. And I don't know. Like I actually think obviously if they're doing hugely accretive M&A, people would start building

that flame. But it does seem like a really big assumption to say, hey, if they start doing inorganic growth and they de-lever just through the integrated growth and issue in equity, there are multiple goes up? Like, that seems like a very, very big assumption. Okay. So let's spend a little bit of time on this because, you know, this, one of the, you know, they traded nine times earnings today. Three months ago, they trade it at six times earnings. So, you know, why was the market saying they're only worth six times earnings or six times free cash flow? The market is actually very good at pricing credit risk. And,

you know, most of the greatest investors, right, they have this heuristic where they don't like debt, right? They like unleverage businesses. They talk about this all the time. And the reason is, you know, it's very hard to quantitatively price the risk. You know, what is a business that has one and a half times leverage or two and a half or three and a half times? How many multiple points is that worth? You know, I read a lot of investment books. None of them lay out, you know, how to do that math, right? Ultimately, what's happening is the more leverage you have, the higher probability of a kind of tail risk wipeout scenario. You know, so if it's the 1980s and Fed funds go to 10%, C-Bus is zero. If they only have one-time's leverage, they're fine. It's a completely different

outcome. It's completely skewed. And, you know, so in my view, the market is very clearly, you know, telling this business, we strongly dislike you at three and a half times earnings. And so I believe when they de-lever to two and a half times and ultimately, hopefully below two times, there will just be multiple expansion that is simply pricing that reduced risk. Let me ask you different. I don't think I'm going to agree, though. I will say to my detriment, I've always been a fan of financial engineering, but let me ask you the market today, you're saying is putting a distress multiple on this, you know, with the three and a half, and you think the multiple will expand if they kind of lowered the leverage and get rid of the distress multiple. A year ago, the stock was at 70, 80, right? And they were actually

more levered at the time, right? And the market was not putting a distress multiple on them. And that's for a lot of the reasons I think you're attracted to this business, right? They would say, hey, this is capital light. We can pay down that really quickly if we just divert all of our cash rent to this. We don't really have a lot of recession risk. Like, we don't have a lot of displacement risk. Again, I think the reason the market is concerned is because of the AI risk here, not because, now that does somewhat relate to the stress risk, but I don't think paying de-levering, the market has never cared about leverage at this level for this business before. I don't think paying down debt and de-leveraging here, like, solve some panacea.

And like, obviously corporate finance would say the leverage here is actually good because it serves as an interest shield unless it gets too high and then you start saying, hey, they're starting to price and bankruptcy costs. But I just, I see what you're saying, but I think like, I do think part of this, you just do not like debt in businesses, period, which is actually fine. I have this debate with some of my friends quite a bit. A lot of my friends do not like debt. And that is fine, but I don't know if it results in multiple expansion if you pay it down the debt. Well, you know, maybe just looking through the history of the share price.

And so, you know, you're right. I cannot kind of extract the AI impact. But at the time of the deal, you know, when the business traded at $80 a share, the market did not sell off. The reason was they committed to de-levering rapidly and implied in that was we will de-wever and we will continue our M&A strategy, right? We will de-lever and then go out and do more M&A. And under that capital allocation plan, you could underwrite double-digit earnings growth into the future. You know, maybe 2025 was a year off with integration and de-leverage.

But after that, as an equity analyst, you'd say, okay, when we get back to M&A, I'm going to have double-digit growth in this business as they, you know, pile capital back into the industry. They made a misstep by buying back $160 million where the shares in 2025 and not de-levering. The business today could be sub three times leverage. They could be doing M&A today. They made this misstep. You know, they haven't paid down the debt. the transcript you referenced from the end of March, the CEO admitted they really won't do any M&A in

26. They might get back to it in 2027, but they need to take their leverage target over the next 18 months. They need to pay down about $325 million of debt. So here is where the capital allocation plan disappoints the market. You're thinking about them buying back shares at an 11% return. You know, mathematically that's right. They could do that, but they're not going to do it. they have committed to paying down debt to two and a half times leverage, and anything left over, they might buy back shares. So what you're going to get is a business that's going to put, you know, 60 to 70 percent of free cash flow into paying down debt that costs six and a half percent. So no shareholders very, you know, that's a six and a half percent return on invested capital.

That's what they're going to do with most of the debt. That is when the shares start the tradeoff. You know, equity investors hate paying down the debt, you know, because it's not that accretive. I love it because it reduces risk. It gives you the option for M&A in the future. I'm willing to price that in because I believe it will happen. But, you know, so my view of the sell-off is actually these capital allocation missteps. And I think they're going down the same path. They're talking about buybacks, but they're going to have to pay down debt.

So no one's really fooled. And they're going to deploy capital at, you know, six and a half percent on the equity side, a little bit of buybacks. You're going to earn 8 percent a year. The market's not excited. Let me switch to a different. So management team here. You know, the Griscoe, I think he's been here for 20 years.

He was the president. Then I think he took over as CEO in 2015. I'd love to just get your thoughts on management team, the board, and alignment. And then I do have a follow-up question on them. Great. Yeah. So, you know, I really like the manager team. The long-term history of his business was it was P-backed in the late 90s.

They did 150 acquisitions to kind of build scale. I believe Jerry was an advisor to their M&A at the time. That business basically blew up in the tech bubble. You know, I think in early 2000, the Fed Funds rate was about 6.5%. The business struggled. Jerry joined the business, I think, in maybe 2003 or 2004. So he's been with the business for a very long time, and he's been familiar with the business for a very long time.

You know, and I love what he's done, right? So he's been with the business for over 20 years, and he's helped to build this culture. He understands that culture is the thing that allows them to be an acquire of choice, to integrate successfully, retain the talent they're buying. And he built the flywheel. So, you know, I'm very supportive of him. I want them to get back to what they were doing before. I think many small-cap businesses have this issue of capital allocation is extremely complex, right?

It's so easy for us on podcasts. It seems like there's just like four options, dividend, buyback, M&A, KAPX. It seems so easy. And we always talk about compounders. You know, the 3% of businesses out there like, you know, Terodyne, that have just done magical things with capital allocation. In reality, you know, most businesses don't do a good job with this. You know, this is why return on equity of the indexes is sub 10%.

Like they don't allocate capital well. So, you know, I'm asking them to make this capital allocation change. and get back to their roots. And I think the manager team is well-placed to continue rolling up the industry and are great leaders of the business. Let me, so you mentioned management team well-placed. One of my concerns when I was looking at this is that you look in the board does, it's not nothing in terms of insider ownership.

I think the bird owns about 4% of the company, which is pretty good, you know, I don't know. I'm here to miss on that. But I look at this board and I say, oh, cool. It's a eight-member board, I believe. the youngest person on the board is 61. It's a staggered board. Six of the eight members are retirement age or older. And I kind of look at this board and say, hey, you know, they oversaw a pretty, they don't have a huge insider ownership here, right? This is a people-heavy business,

but it's also increasingly a technology business. As we mentioned with all day, I say, oh, cool, you've got a lot of long-tenured, very old directors. Is this a board that's going you have a, shareholders best interest at our and their capital allocation decisions and B, are they going to be abalding with the times? Because again,

an accounting business in 2001, when many of these directors joined the board, it looks a lot different than an accounting business today and probably an accounting business a few years. So are these the right guys to kind of be running that strategy or, you know, I hate to be,

I always feel ages, but you know, I worry about boards where a lot of, a lot of the members are older and don't have a lot of ownership. I worry it's serving as a semi retirement fund, not a, hey, we're going to stay on the cutting edge of things as things up all really quickly. Yeah, I mean, I'm not going to argue with you on that. You know, this is a Cleveland based business, presumably, you know, they're all good friends. They've been there for a very long time. You know, things were going swimmingly, you know, until about a year ago. You know,

I imagine that our discussion on capital allocation, you know, was probably more in depth than what's been going on at the management board level. And this is why, you know, I'm being public about my proposal, trying to, you know, as a shareholder, have a strong voice here to say, get back to what works, you know, be a little bit more prudent, a little more risk averse, you know, with the shareholders capital. Last question here. So if I flip through your slides, and again, anyone can go, I think the website and the slides are quite in depth. Anyone can go look at them. But look at the your proposal, right, is, at the core of your proposal is restart the M&A fly. Right. Issue equity, right? But part of your proposal is go issue equity right now, right?

And I guess I do worry about the issue. Obviously, we might have differing views on the, hey, and they've got different views on the repurchase our shares versus go issue it versus go restart them and a flywheel. But you want them to issue M&A equity right now. And I do worry, like, if they issue equity right now, A, there's going to be bankers fees. They have to take a discount, you know, even if it's only 5% of the company, they're going to have to take a discount, all this sort of stuff. But then the second thing is, like, historically the way they've done M&A, you know, mark them or any of these, as you mentioned is we pay some cash, we pay some stock, and we pay some deferred stop, right? Because these are people business. You want to incentivize them.

What's the need to go issue equity when if they want to go, if they want to say tomorrow, we're not buying back shares, we're restarting the M&A flywheel. Well, A, leverage starts to tick down because they're growing earnings, allegedly, and they're going to, uh, generate a lot of cash so they can double D lever on that. And B, whenever they find the target, they can just say, hey, take our stock, you know, instead of doing the stock, everyone, we'll just hit our stock. So why go for an equity offering versus the D lever weight? And by the way, the other nice thing there is you take the equity offering, your hands are kind of tied, right? You've diluted yourself. And even if you can't find something for three years, the dilution is there.

If you use the equity as part of a deal, not only do you incentivize the seller, but you also can wait to kind of issue the equity until the deal happens. So why issue equity now. Yeah, and so, you know, I guess there's a bit more nuance because I'm going to agree with you on a lot of the points you had there. So first, when I think about them issuing equity, this is not a distress equity sale. My proposal, you know, and it's in the deck, I want the manager team to work with me, get in a room, maybe have a banker facilitate a chat with, you know, high-quality, long-term investors who are willing to understand the business model and a are excited about the opportunity. And I believe that you can find those investors to come in with

equity, not at a discount and also, you know, not paying huge bank fees. The reason is this business as an investor is completely different at three and a half times leverage versus two and a half or say two point nine times leverage. There are many investors who, you know, are averse to three and a half times leverage. That's why they're not buying shares in the public market, right? Anyone can buy shares, say, at 37, what I would rather do, I'd almost be willing to pay $40 a share if the cash went onto the company's balance sheet and de-levered the business. Because my cash, instead of going to another seller, would actually be reducing the risk in the business. It makes the company more investable if they were to raise this equity. Simultaneously, to your point, the point

is not to raise equity and sit on the cash. This would need to dovetail with the company's M&A pipeline. You know, if you had the shareholder base willing to finance shares with equity, you could wait until you had attractive opportunities and sell the shares that way as well. So it's not, you know, a proposal that they have to issue equity today. It's more about how do you get back to M&A and what's the fastest way to do that. Isn't so just on your bring, to have a banker bring in long-term shareholders, isn't that a little pie in the sky?

Like, look, this is a completely different thing. But I can't tell you how many times I do a lot in busted buyouts. right? And I can't tell you how many times I've seen a busted biotech or a little tiny company trading way cheap. I mean, a lot of the busted biotechs, I've seen some that are treating at 80% of net cash, right? And they do an equity offering. And you go to them and you're like, what the hell? You just diluted shareholders at 70% of cash because it's always at a discount, right? And they'll say, hey, man, we had this great shareholder. You know, he's a super respected healthcare investor. He wanted to join the shareholder roster, but the shares were

too E liquid, so we had to do it. And I'm like, your stock was streaming at 10 and you had to issue equity at 8, by the way, which is 70% of cash to get them on. And they kind of just shrug their shoulders. You know, like they don't care. And I guess, you know, I can't think of many examples where a one of these long-term patient investors saying, like, they have limited capital, right? There aren't a lot of them. They have limited capital. I'll point you to Wix, which I don't think it's worked out well, but earlier this year, durable comes on their roster. And what do they come on their roster with. Well, the stock's at from memory 90. And Wick says, oh, we're getting this great investor in. They brought him in at 75 with Warren Kickers. So you got like 20% discount on the stock

plus a Warren Kipper. Like you bring in a Warren Buffett to your share order registry. Yeah, it sounds looks great. But guess what? He charges you 2008 Bank of America, you know, 6% prefs plus a warrant kicker. So I don't know. Like, do you have an example of a company where the business is so good, long-term shareholders came and put in money just onto the balance sheet at or above the share price without any kind of ignore the bankers fees just like without demanding discount because it seems like they are kind of in the poll position to demand discounting in this world. Yeah, I mean, I think you can, you know, from my discussions with C-Biz, you know, you can take comfort that they are not, you know, interested in selling shares at a massive discount, right? Their business is not

the stress. They're not burning cash. You know, they're not, it's not the GF, era with Warren Buffett. So, you know, they have no desire to do what you were describing, which is good for shareholders. You know, there was an example recently a European private equity firm bought a large stake in a company called FMC at a premium. The capital was used simply to pay down debt. It's a long-term position for that firm. And, you know, the business to them was over levered. They weren't interested, but bringing primary capital made them interested in the business at a different multiple. You know, going back to our discussion, you know, again, it's very hard to quantify this. But if

C-Biz had no debt, I am highly confident that they would not trade at nine times earnings, and I would imagine they would trade at, you know, 11 or 12. So paying down debt does literally reduce risk and create option value for the business. So for a shareholder, they have the opportunity to bring that capital, I think it would be very attractive. And, you know, again, I'm not really proposing bankers rounding up these investors. I know many of these investors. I know many of these You know, there aren't that many active U.S. small cap mutual funds left, but there are some large ones. They don't like companies with three and a half times leverage. But if their capital brought the leverage down, it would be an investable business for them trading at a great price.

And, you know, that's what I'm encouraging management to just have some discussions about, consider, you know, where they can find some business. But then honestly, even stepping back from the equity rate's proposal, you know, the most important thing is that C-BIS stops their muddled capital allocation policy now. Hang down debt for two years, buying back a few shares here and there, not growing or growing EBITDA 5%. It's not an attractive equity story. They have an opportunity to get back to M&A, however they want to finance it, reduce their leverage, grow their earnings, grow their earnings per share, and get back to a normal trading multiple and enhance their competitive position. So that's the real proposal to them. Wherever on the spectrum, they want to fall in

financing it, you know, I'm fine with. Oh, I think that's a great place to wrap it up. We've been going for an hour. The only other thing, now I really want to look at FMC because I was just flipping through it. I mean, I can't believe the stock's at 10 and they issued like 20% of the company at 1330. That is a fascinating deal. But probably now they're here nor there.

Ryan Bunn, I will, again, link in the show notes if people want to see the website, see the deck, all that sort of stuff. And then they can reach out to Ryan if they want to follow up or they can reach out to C-Biz and say, please, restart them in and fly. or please don't restart that matter of probably. However they want to reach out, they can do that. But Ryan, this has been great and we'll chat soon. Excellent.

Thank you so much. A quick disclaimer. Nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.