Fifth installment in Paul Giannamore's M&A Masterclass series, focused on the subjective nature of business valuation. Drawing on real deals including the Starbelly.com acquisition, it argues that valuation depends on psychology, risk, narrative, and leverage rather than EBITDA multiples alone. Topics include valuation as a story rather than a formula, value as a range, fair market value vs. strategic value, wealth vs. price, market timing and cycles, why predicting the highest-paying buyer is unreliable, and how competition drives price discovery. Aimed at business owners preparing for a sale and their advisors. # Channel Identity Observations: M&A Valuation Masterclass ## Creator Self-Description (Explicit Claims) - The host identifies himself directly: > "Hi, I'm Paul Gammore. I'm an investment banker and I negotiate for a living." - He positions himself as sell-side focused: > "I'm always on the sell side" and > "As a sell side advisor..." - He claims deep experience: > "in my relatively brief experience of 20 years" and references living through the dot-com boom/bust and the great financial crisis. - He names his firm (transcribed as "Ptoic"): > "What I hear most often from our clients here at Ptoic is the extreme value in working with us years in advance of a sale." - He references a series structure: > "if you've watched the sellside master classes, you know that we're extremely aspirational" and > "I will do a future master class on understanding how to better time the market." ## Intended Audience (Observable Evidence) - **Business owners considering a sale** are the primary addressed audience: - > "Whenever a business owner asks me, 'What's my business worth?'" - > "I think one of the most important things for you as a business owner to take away from all this..." - Hypothetical client "Jeff" is used throughout as a stand-in for an owner planning a sale 2–3 years out. - Audience is framed as prospective advisory clients: the video closes with a direct CTA — > "If you've got a sale on the horizon, whether it be 6 months from now or 5 years from now, we'd love to have a chat with you. Please use the contact form below in the description." - Secondary audience: viewers who might share the content — > "feel free to share this master class series with somebody who you think might benefit from it." ## Claimed Scope of Content - Part of an explicit **"M&A Masterclass" series** (per title and repeated references: "sellside M&A master class," "psychology behind an M&A transaction master class"). - Topics demonstrated in this video: subjective valuation, fair market value vs. strategic/investment value, synergy math, consolidation cycles, exit timing, sell-side process design. - Title tags the content as related to **Private Equity**; the transcript discusses PE behavior in consolidations: > "When private equity starts to get into industries, they pay to play." ## Demonstrated Presentation Patterns (Observable, Not Claimed) - **Narrative-driven teaching**: opens with a personal war story (the Starbelly/Halo $240M deal) rather than definitions. - **Authority through personal anecdotes**: first-person deal experience, deposition testimony, and a 2019 client example. - **Educational register with direct address**: recurring second-person guidance — > "you should drop your assumptions at the door whenever you get into a sellside scenario." - **Marketing integration**: educational content concludes with a client-acquisition pitch for the creator's firm. ## Notable Gaps - No metadata was supplied beyond title; no subscriber counts, upload cadence, or channel description available from this material. # Delivery Observation: Valuation Masterclass (Paul Giannamore) ## Overall Tone & Register - **Conversational-expert hybrid**: blends practitioner war stories with structured teaching. Formal financial concepts are delivered in casual, first-person language. - **First-person credibility anchoring**: repeatedly situates himself inside the deals he describes. > "I'm an investment banker and I negotiate for a living." > "I can tell you right now, Starbelly's fair market value was nowhere near 240 million." - **Sardonic, judgmental asides** when describing bad decisions: > "Halo's management team listened to this nonsense and then told themselves a story." > "How could management be so stupid as to pay $240 million for a website." ## Recurring Phrases & Verbal Anchors (strong repetition) - **"Story/stories buyers tell themselves"** — the video's central refrain, appearing many times: > "Valuation is storytelling. It's a story buyers tell themselves about risk, about cash flow, and about the future." > "Every one of these acquirers is telling themselves a different story." - **"To whom?"** as a rhetorical reflex: > "What's my business worth? My response is always the same. To whom?" - **"Fair market value" / "strategic value" / "investment value" / "value creation zone"** — repeated jargon scaffolding that structures the whole lesson. - **"Full price discovery"** and **"competitive process"** — repeated as the prescribed solution. - **"Eye of the beholder"** used twice as a value metaphor. ## Teaching Habits - **Cold-open narrative hook**: opens with a personal anecdote (Starbelly/Halo deal, 22 years old, donut holes) before introducing the thesis and himself. - **Hypothetical named characters** to walk through scenarios: - "Jeff" for the seller walkthrough: *"Let's say Jeff comes in and says, 'Paul, I want to sell my business in 3 years.'"* - "Cousin Eddie" as the recurring comic foil for a buyer with no capacity: *"Your cousin Eddie who's got no money and no capacity to pay."* - **Rounded hypothetical numbers**: $50M, $100M/$150M, $70M/$69M — arithmetic is done aloud and simply ("10 times cash flow... I've created $10 million in value right there"). - **Enumerated summary takeaways**: *"Number one, think about the fact that their business doesn't have one value... Number two... Thirdly..."* - **Self-referencing cross-promotion**: repeatedly points to prior and future "master class" videos: > "If you've watched the sellside master classes, you know that we're extremely aspirational." > "I will do a future master class on understanding how to better time the market." - **Explicit epistemic humility** as a teaching device: he flags what he *cannot* know: > "I can't tell you from experience although anecdotally more times than not I am wrong about which acquirer prevails." > "We can never know the stories that the buyers are telling themselves." ## Communication Patterns - **Rhetorical questions answered by himself**: *"Why sell it now?"... "Why wouldn't we just go to acquirer A?"... "How the hell do I get them to pay that?"* - **Second-person direct address** to business owners: *"As a business owner, I want you to think about your business having a spectrum of values."* - **Repeated "so on and so forth"** and **"right?"** as filler/confirmation tics (appears frequently throughout). - **Contrast framing** as the primary explanatory structure: rich founders vs. bankrupt acquirer, fair market value vs. investment value, $50M vs. $70M, buyer vs. seller. - **Historical/cyclical references** to establish pattern authority: dot-com bust, GFC, quantitative easing, industry consolidation examples (IT staffing, pest control, HVAC, bottled water). - **Call to action close** tied to his firm: *"What I hear most often from our clients here at Ptolomeic... Please use the contact form below."* ## Stable Patterns vs. Isolated Moments - **Stable**: the "story" refrain, "to whom?" framing, competitive-process prescription, hypothetical-number walkthroughs, rhetorical questions — all recur multiple times. - **Isolated (uncertain as habits)**: the ChatGPT/call-center anecdote and the India/Philippines example appear once each; the "cousin Eddie at the deli" variant also appears only once more, so its repetition is thin but present. The transcript is one continuous talk, so pattern stability across videos cannot be assessed. ## Uncertainty Notes - Transcript contains apparent transcription artifacts ("Chris Saturday," "cool Chris," "Star Valley," "Ptoic/Ptolomeic," "Eric Wowski/Lefcowski"), so exact names cannot be confirmed from this source alone. - No timestamps beyond transcript order are reliable; delivery features (pace, gestures) are not observable — only linguistic evidence is used here. # Position Record: "The Subjective Nature of Value: Stories Buyers Tell Themselves" **Speaker:** Paul Giannouris (transcript renders "Gammore"/"Jammore"), self-identified investment banker, sell-side advisor. ## Core Thesis > "Valuation is storytelling. It's a story buyers tell themselves about risk, about cash flow, and about the future." - **Value is subjective, not objective**: A business has a spectrum of values, not one price. "Beauty is in the eye of the beholder." - To the question "What's my business worth?" his standard reply: **"To whom?"** — value differs by buyer (owner, cash-poor cousin, public behemoth). ## Anchor Case Study: Halo Industries / Starbelly.com - First live deal, Chicago, at age 22. Starbelly: promotional products website, ~$800K revenue, ~$5M/year burn rate. - Eric Lefkofsky's stated rationale for selling rather than pursuing a billion-dollar IPO: *"Sometimes it's just better to take a risk off the table today."* - Halo paid **$240 million**; the tech bubble burst two months later; Halo went bankrupt. Giannouris was deposed in federal court. - Founders Brad Keywell and Eric Lefkofsky "walked away wealthy," later co-founding companies including Groupon, both becoming billionaires. - **Speaker's causal claim**: Investment bankers hired by the founders scared Halo's management with a narrative that web technology would destroy their old-world promotional products business. "Management bought that lie." - His characterization: Halo's fair market value for Starbelly "was nowhere near 240 million"; no one else would pay ~300x revenue; the acquisition was **defensive/compelled** — Halo feared being eaten by Starbelly. ## The Valuation Spectrum - **Strategic/investment value** (top): full price discovery via competitive process. - **Fair market value** (middle, "hypothetical construct"): neither party compelled; financial buyer; no synergies; buyer pays for intrinsic value of cash flows. - **Liquidation/bankruptcy value** (bottom); many points in between. ## Synergies and the "Value Creation Zone" - Buyer-side example: $50M fair market value business; buyer cuts $1M costs + $1M cross-sell cash flow = $2M created; at 10x = **$70M investment value**. - Buyer's question: why pay $70M for a $50M business when the buyer creates and bears the risk of the synergies? - **Seller's answer**: the competitive process determines how the created value ($20M in example) is split. In buoyant markets, sellers running a proper process "extract the majority of the value created." Buyer may pay $68–69M for a $70M-to-them asset. ## Price vs. Wealth (the "Jeff" example) - Preliminary valuation: FMV $100M, top of investment range $150M — these are **prices**, "just an opinion" of what the market pays for a cash flow stream, not wealth. - Common owner error: adding the $150M price to $10M personal assets to claim $160M net worth — "absolutely not correct." - **Real wealth is the cash flow stream**; market multiples merely re-price it (consolidation cycles: 5–6x → 12–16x → back to mean). - Jeff later improved the business, range moved to $150–200M, ready to sell. ## Why Run a Full Competitive Process - "We can never know the stories that the buyers are telling themselves." - **2019 counterexample**: client wanted to approach only acquirer A; full process ran; acquirer C — unknown to be motivated by hidden financial problems and quarter-end pressure — paid "an astronomical number." Going direct "would have left tens of millions of dollars on the table." - Hidden motivations: retiring CEOs wanting a legacy deal, CFOs plugging P&L holes — unknowable in advance. - **Admission of fallibility**: "More times than not I am wrong about which acquirer will prevail... my clients are usually wrong about it too." - Sophisticated buyers will hear the sell-side narrative and "discount it accordingly." - **AI/call-center example**: an acquirer with AI voice technology buying a 5,000-person call center keeps only the customers; the buyer creates the value, so only competitive pressure forces payment near investment value. ## Consolidation Cycles and Timing - Career spanned dot-com bust, GFC, QE-era asset inflation. - Consolidation waves (IT staffing, gov contracting, pest control, HVAC, bottled water) — often PE-driven: platforms plus add-ons buoy multiples, then multiples fall. - Owner error: believing peak multiples (e.g., 15x) are "the new normal" and doing 10x acquisitions accordingly. - Advice: buy/retool when deal activity is slow; consider exit when activity heats up. "Impossible to call the top"; booms "tend to last longer than any of us would expect." ## Prescriptive Takeaways (as stated) 1. Value is **subjective** — no going rate. 2. Market price ≠ owner wealth; it's a real-time interpretation of cash flows. 3. Watch **consolidation cycles**. 4. Drop assumptions at the door; **never assume** who can create value or pay most — use a full process. ## Notable Qualifications & Tensions - Halo's compulsion to buy is presented as an argument ("we could argue there was some compulsion"), not settled fact. - His top-of-range estimate ($150M) is judgment-based: "I use my best judgment to say this is probably where acquirers tap out" — yet he targets $200M ("we're extremely aspirational"). - Synergy math depends on an assumed 10x multiple ("if that's what these things are going for"). - The video closes with a promotional pitch for his firm ("Ptoic" per transcript) — the process recommendation is embedded in a sales context. # Speaker Attribution & Provenance Record ## Video - **Title:** The Subjective Nature of Value: Stories Buyers Tell Themselves | An M&A Masterclass | Private Equity - **Video ID:** `01a168c7-aa0f-7fdc-8c2a-c542095c1078` ## Speakers & Roles ### Paul Gammore (also rendered "Paul Jammore" / "Paul Gammore" in transcript) — **Creator / Host / Instructor** - Self-identifies: *"Hi, I'm Paul Gammore. I'm an investment banker and I negotiate for a living."* - Sole speaker throughout; delivers the masterclass narrative, frameworks, and case studies. - Closes with: *"Again, I'm Paul Jammore. Thank you for joining me today."* ### No other speakers - **Guests:** None. - **Narrator (separate from creator):** None; creator narrates. - All other individuals are **referenced persons**, not speakers (see below). ## Referenced Third Parties & Claimed Sources (as recounted by creator — unverified) - **Eric Lefcowski / "Eric Wowski"** (name varies in transcript) and **Brad Keywell** — co-founders of Starbelly.com; quoted: *"Sometimes it's just better to take a risk off the table today."* Later co-founders of Groupon; Lefcowski claimed to be on the Forbes 400 list (creator's assertion). - **Halo Industries** — acquiring client in the Starbelly.com deal ($240M acquisition, subsequent bankruptcy). - **"Jeff"** — hypothetical/illustrative client used in valuation examples. - **"cousin Eddie"** — illustrative figure with no capacity to pay. - **2019 anonymized client** — sell-side process anecdote involving "acquirer C." - **India/Southeast Asia call-center acquisition** — secondhand example ("a transaction I recently saw in Asia"). ## Promotional Segments ⚠️ Flagged - **Closing promotion:** *"What I hear most often from our clients here at Ptoic is the extreme value in working with us years in advance of a sale... Please use the contact form below in the description to reach out to us today."* — promotion of the creator's firm (firm name rendered "Ptoic" in transcript; possibly a transcription artifact). - **Series cross-promotion:** references to prior "sellside M&A master class," "psychology behind an M&A transaction master class," and an announced future masterclass on market timing — promotional in nature. ## Provenance & Availability Notes - **Curated metadata:** None supplied beyond title and transcript. - **Comment availability:** Not indicated. - **Citations:** All anecdotes are first-person recollections (e.g., deposition in federal court re: Starbelly/Halo deal); no external cited documents or third-party sources are referenced. - **Transcript quality caveat:** Speaker name and several proper nouns appear garbled or inconsistent ("Gammore"/"Jammore," "Lefcowski"/"Wowski," "Ptoic"), reflecting transcription uncertainty. It was a cool Chris Saturday morning in Chicago. I was 22 years old and brand new to investment banking. In fact, this was my first live deal. I got up that morning, put on my three-piece suit, grabbed some doughut holes and coffee, and made my way to Rogers Park on the north side of Chicago. That morning, I sat down with the co-founders Eric and Brad, and we talked about the sale of their business, Starbelly.com, to our client, Halo Industries. Now, Starbelly was a website that sold promotional products. You know, the types of things that get stuffed in the back of closets and left behind in hotel rooms. Starbelly did $800,000 per year in revenue and had a burn rate of over $5 million a year. As we sat around the conference table that morning, me of course in my suit. These two adorned in jeans, t-shirts, and baseball caps, casually munching on donut holes and sipping coffee, I asked Eric. Eric had mentioned a few times that if you hold on to this, you could take this business public for over a billion dollars. Why sell it now? Eric took a sip of coffee, leaned back in his chair, and said, "Sometimes it's just better to take a risk off the table today." 2 months later, the tech bubble burst, and Halo Industries collapsed under the weight of the $240 million acquisition, ultimately going bankrupt. I would subsequently be deposed and found myself in federal court answering questions such as, "How could management be so stupid as to pay $240 million for a website owned by two 29year-olds generating 800k a year of revenue. But Brad and Eric, they walked away wealthy, very wealthy. They went on to co-ound multiple public companies, including Groupon, both becoming billionaires. In fact, Eric Wowski found himself on the Forbes 400 list. Same market, same timing, same bubble. Two very different outcomes. One became a billion-dollar fortune. The other ended in disaster with bankruptcy. Hi, I'm Paul Gammore. I'm an investment banker and I negotiate for a living. Today, we're going to talk about valuation and why it's not just about the numbers. Valuation is storytelling. It's a story buyers tell themselves about risk, about cash flow, and about the future. Whenever a business owner asks me, "What's my business worth?" My response is always the same. To whom? What's your business worth to whom? To you, it might be worth one thing. to your cousin Eddie who's got no money and no capacity to pay. It's worth something entirely different. Now, of course, the publicly traded behemoth in your industry, it might be worth something entirely different. A business that can acquire your company and capitalize on the technology that you've built over the years. So, a business doesn't have one value. It is not objective. It's subjective. And beauty really is in the eye of the beholder when we talk about valuation. The discussion we had about Halo's acquisition of starbelly.com. I know it's an absurd example, but it proves the point here. I mean, what sort of would pay $240 million for a website that had no real technology generating 800K in revenue and losing $5 million a year. Now, I know it was at the height of the dot bubble, but notwithstanding, there was one reason why Halo paid $240 million for Starbelly. It was because 29-year-old Brad Keywell and Eric Lefcowski hired investment bankers. And those investment bankers scared the living out of Halo's management team. They came in and said, "Hey, there's this new technology. It's the web.com. it's out in the ether and it's going to destroy your business. So unless you guys pay up, we're going to take over. And unfortunately for Halo and its shareholders, management bought that lie and ended up paying $240 million for that business and it ended up in bankruptcy. Now, there was no one else on the planet who was going to pay that. You know, Eric and Brad of course thought they could take that business public for a billion dollars. Maybe. And again, it was the height of the dot bubble, but there was no one else that was going to pay 300 times revenue for a website. So that's an example of how valuation actually is subjective. And that was ultimately a story, a narrative that the buyer told itself about risk and about cash flow. They looked at Starbelly and said, "Well, wait a second. We've got this oldworld promotional products company." So, it's a company that does branded trinkets, right? You know, mugs and pens with IBM or AT&T on it. They were selling them through account representatives at the corporate level. Starbelly came in and said, "Hey, we'll take this and we'll give IBM or AT&T its own branded apparel store so employees can log in and get themselves an IBM cup." Halo's management team listened to this nonsense and then told themselves a story. a story about risk and their story happened to be very very wrong unfortunately. So that demonstrates the subjective nature of value. So just like beauty, value really is in the eye of the beholder. As a business owner, I want you to think about your business having a spectrum of values. At one end of the spectrum, we'll call it the highest investment value or strategic value. This is if you went out to market in a competitive process and you were able to get full price discovery and you ran the price all the way up to the very top. This is the highest value that this business would transact for. So we'll call that strategic value or investment value. At the other end of the spectrum, you know, we might have bankruptcy or liquidation value, but somewhere kind of in the middle, we have the hypothetical construct of fair market value. And there's a million different value points in between. And I like to think about value as whenever I go to a process, I take one company and I might have 30 different acquirers. Every one of these acquirers is telling themselves a different story. They're telling themselves stories about your business, about your capabilities, about the resources. They're telling themselves a story about the cash flow that business and what it will generate going forward. They're telling themselves a story of how acquiring those capabilities, whether it be revenue, technology, so on and so forth, can help bolster their bottom line. And they're telling themselves a story about market conditions. Are they buying at the high end of the market? Are they buying at the low end of the market? Where are we in the greater financial environment? Every one of these buyers is telling themselves a story. As a seller, you can't look at your business as having a going rate. You know, what's a sales multiple or what's a standard EBIT multiple for my business? You have to think probabilistic and the fact that you've got a wide spectrum of buyers each telling themselves their own story to determine the value of the business. Now, of course, the question is how do you get them to pay it, right? And so, I think one of the issues that a lot of sellers have is when they start to think about the fact that their business may have an objective value or there's a going rate for their business, they start to think that, hey, my business is worth $25 million. It's kind of the objective price for it and any acquirer that's interested should realistically pay that. But the reality is, again, every buyer is telling themselves a different story. Every buyer has a different capacity to pay, right? So again, pretend for a second your business is roughly worth $25 million on the open market. Your cousin who works at the deli down the street, he's not somebody who's going to be able to buy your business. He doesn't have the he might have the interest and the desire, but he doesn't have the capacity to pay. Other acquirers, you got publicly traded companies, you got private equity firms. They clearly have the capacity to pay, but now you've got to force them to pay the price. And you do that through a competitive process. You know, whenever I deal with sellers or clients, because I'm always on the sell side, um, I like to think about valuation this way. And I do use the hypothetical construct of fair market value because fair market value basically is a value whereby neither the buyer nor the seller any sort of compulsion to transact. Right? The the and typically buyers are under a compulsion to transact although sometimes they are. In the case of Starbelly at Halo, I would argue that Halo felt like they were compelled to buy because if they didn't buy, their business would disappear, be eaten up by Starbelly. So in that particular case, we could argue there was some compulsion. But usually there's no compulsion to buy. Sometimes there's a compulsion to sell. You've got a business owner who gets sick. You've got somebody facing bankruptcy. You've got one business owner owns one business, but she also owns another business. That business is going to the tank. She has to free up cash. So on and so forth. So we don't have any of these exogenous issues that will cause somebody to have to transact. We've got a buyer, got a seller, neither under compulsion, but the buyer is not able to create any synergies from the deal. Meaning it's a financial play. So in a hypothetical construct like fair market value, the buyer is buying the business for the quote unquote intrinsic value of the cash flows. So that's what I think about from a fair market value standard perspective. And whenever I deal with sellers on the sell side, I say, okay, if we think about a hypothetical construct, fair market value, your business is worth, and I'll make this up. You've got a business worth roughly $50 million, right? So that's what it's worth. That's what it's worth to you, the seller. So, if you were to buy out a partner, if you were to take on some minority financing, it would be done at roughly a $50 million enterprise value. But I like my clients also to think about the fact that fair market value is all that they really have to sell, but that's not what they're going to sell for. They're going to sell for the high end of the strategic value range or the investment value range. Now, we're in a position where we're talking about compulsion. So, in this particular case, when I talked about Halo and Starbelly, Halo did have a compulsion to buy. I mean, I can tell you right now, Starbelly's fair market value was nowhere near 240 million, right? So, we've got buyers that might have a compulsion to buy. Um, but then we talk about synergies, right? So synergies come into the mix. And in the same way I talk to sellers about the fact that fair market value is all they really have to sell. When you think about it from a buy side perspective, again I'm not a buy side guy, but if I were on the buy side and I looked at a deal and I thought, okay, it's worth roughly 50 million bucks to the sellers. But for me, the acquirer, I can go in there and I can I can cut a million dollars in cost because there's a lot of redundancies. And if I'm paying, you know, 10 times cash flow, when I can cut out a million dollars from the bottom line, I've created $10 million in value right there. I can now cross-ell my products and services to this wider customer base. And the target, I can take Target's products and services and sell them to my customer service base. and I might be able to create another million dollars in cash flow there. Right? So now I've created $2 million in cash flow from the combination. And at 10 times, if that's what these things are going for, I've created 20 million in value. So now that business is worth 70 million to me, but I don't know, is it right for me to write the check to the seller for 70 million bucks? I mean, I'm the one taking the risk. I'm the one create I the buyer. I'm creating these synergies here. Why should I pay this guy $70 million for his business when it's really only worth $50 million bucks? And I think that's an important concept for buyers to think through. It's like, okay, it's effectively a $50 million business. How much value am I creating? And then the sellside process is where buyer and seller out in the open market fight for that room in between the value creation zone. So value will be created by this strategic transaction $20 million let's say. Now the fight between buyer and seller is how much will the buyer and how much will the seller be able to extract from that transaction of the created value from the combination. Unfortunately for buyers particularly in buoyant markets sellers if they're running process correctly extract the majority of the value created. Right? So on that particular deal, we might see a situation where a buyer would be forced through a competitive bidding process to pay 68 $69 million for that company. And buyer can be like, damn, taking a lot of risk and these guys are extracting a lot of the value that I'm creating. But at the end of the day, I pay $69 million for this business and it's worth at least 70 to me. It's I'm still creating value by doing the deal. And that's some of the math that buyers do behind the scenes. Now, whenever I sit down with our clients, they come to us years in advance typically and they'll say, "Hey, I'm thinking about selling my business in two years or three years. Paul, what can we do in order to prepare for this sale?" And I will tell you 100% of the time there are a variety of things that we can do to increase the value of the business. Let's say Jeff comes in and says, "Paul, I want to sell my business in 3 years." Okay, Jeff, can you run a valuation for me? Tell me what you think this is worth. Worth to whom? But we'll get to that in a minute. And then tell me areas that you think I can improve to really get the most for this business. Okay, fine. So we'll do a preliminary valuation and how we do this is we start with fair market value right we say Jeff this is what your business is worth to you and let's pretend for a second Jeff's business is worth 100 million bucks right so Jeff the fair market value is 100 million this is what it's worth to you if we took it out to a formal sellside process based upon what we know about the entire acquisition universe based on what we know about the capabilities and the resources your business brings to the table. Based on what we know about the scarcity value of this asset and effectively what this variety of acquirers could potentially do with the business, we think that the high end of the investment value range is $150 million today. Right? So fair market value 100 million, high end of the investment value range 150 million. Now, as a sell side advisor, it's not like I'm setting the high end of the range saying, "Okay, it'll go from 100 to 150 million, and we're not going a penny over 150." I use my best judgment to say this is probably where acquirers tap out. But there are many times where we blow past that because again, you know, if you've watched the sellside master classes, you know that we're extremely aspirational. So, we're setting our targets here. I'm not setting my target for 150 million. I'm setting it for 200 million. Um, in a perfect world, we get above the 150. But at the end of the day, I want my clients to understand realistically, this is the range here. It's probably worth somewhere around 100 million on a fair market basis, and it's probably worth about 150 at the high end of the investment value range today. Now, Jeff, you've got three years to prep for this thing. And so, we're going to go through the business very deeply. We're going to look at the resources and capabilities in the firm. We're going to look at the company's strategy, his people, the architecture, the routines, the culture of the business, and try to think about all the different areas. We're going to look at basically capital allocation. How is Jeff allocating his capital? And is Jeff's business allocating its capital to the highest and best uses? A lot of times business owners really get tunnel vision because they've been doing the same thing so long and it has worked and they're not really thinking about other ways that they could do things that would help them compound growth within the firm. So, but this baseline preliminary evaluation gives Jeff an idea of what that range looks like. The 1009 Now, inevitably, what's interesting to me is Jeff will look at this valuation and he'll say, "Man, it's worth at least 100 million, but it's probably worth 150 today." If you take my house and my other assets and so on and so forth, which is about 10 million bucks, I'm worth $160 million, which is absolutely not correct. So Jeff's wealth is not the 150 million. In fact, it's not even the 100 million. So the wealth that Jeff owns is of course his personal assets, which I just said were 10 million bucks. And it's the stream of cash flow that that business is generating. When I talked about valuation, right, 100 to 150 million, I'm talking about prices, right? I'm taking valuation and I'm turning it into a price which is 100 to 150. And price is just an opinion, right? It's a opinion as to what the market would value that stream of cash flow today. So let's think about this for a second. Equity or stock in a business. So Jeff owns equity in his business. Equity is nothing more than a claim on future cash flow. And the value or the price of that equity is just an opinion in the market as to what that particular stream of cash flow is worth. So Jeff's wealth, if we said 150 million is likely what his business would sell for today, it's not his wealth. That's the price of his business. You know, markets change. There's market cycles and they change constantly. When you look at industries that go through consolidation, for example, you know, you might have the beginning of an industry consolidation where typical companies are selling for six to seven times EBITDA. During the heavy hardcore days of hot consolidation, that might ratchet up to 12, 13, 15, 16 times EBITDA and then of course very quickly fall back down. And so in the course of the consolidation bubble, the valuation multiples went up. So the price or the value of the business went up. But the real wealth, which is the cash flow of the business, did not change. That's just actual wealth. It's cash flow of the business. It's just how the market interpreted the value of that stream of cash flow. And I think it's very very important for business owners to understand that their wealth is not really the wealth locked up in the business so to speak. The wealth is a stream of cash flows that the business generates. And the price again is a market's interpretation today in real time as to what that stream of cash flow is worth on the open market. what it's worth to a financial buyer, what it's worth to a strategic buyer, what it's worth to cousin Eddie, will all have different values on the valuation spectrum. And if you as a business owner can start to think about things that way, it's going to really help you make a lot of decisions. is going to help you allocate capital more efficiently and it's going to help you really understand when you should and should not exit business. You know, over the course of my career now, I've lived through a lot of booms and busts, right? I started my investment banking career during the dotcom boom and bust and then of course after that we saw the runup and we found oursel at the great financial crisis which of course is a disaster and deals stopped and valuations created. It was a mess. Central banks around the world began quantitative easing programs. Markets began to shoot back up. And we've lived in an era, you know, for 15 years of for the most part everinccreasing asset prices. But business owners need to think about things from cyclical perspectives. So let's go back for a second. Number one, think about the fact that their business doesn't have one value. It's not objective. It's subjective. It's a range of values. Number two, that the current value or the price that the market puts on their business is not their wealth. It's just what the market interprets the value to be today, which changes over time. Thirdly, I think you really need to pay attention to consolidation cycles. I talked about boom and bust cycles, but industries go through consolidations, right? Back in the early 2000s, we saw the IT staffing consolidation and government contracting consolidation. We've seen pest control and lawn care consolidate. We've seen HVAC consolidate. There's all these different industries that go through consolidation waves like the bottled water industry for example. Um you have these very mory bund markets where companies sell for three, four, five times EBITDA and then there's a consolidation play and largely driven by either publicly traded companies or more so today by private equity. When private equity starts to get into industries, they pay to play. They get large platform companies and then they go out make a lot of add-on acquisitions which of course buoys the market and we see runups in valuation multiples and then once that consolidation starts to slow down because it inevitably does then the market changes once again and valuations fall. And what's always interesting to me is every single industry consolidation that takes place business owners within that particular industry always believe the good times are here to stay, right? Even though valuation multiples may have been five times trailing EBIDA for 25 years and then we get to a consolidation boom and they go up to 15 times. The business owners operating within that consolidation boom think that okay 15x is the new normal. This is what it will always be. So I can go out now and do acquisitions at 10 times and still create value because I'm a 15x business. So if I can buy these smaller ones from 10x I'm creating value. And then what they come to realize is as the consolidation boom slows down and valuation multiples once again began to fall, now they're an 8x business or a 7x business or inevitably they might be back to reverting back to the mean of 5x. One of the questions I always hate from our clients is, "Hey Paul, I'm I'm getting close to doing something, but maybe I've got another six months or a year. where do you think valuations will be that well I have no idea because you know we've got a lot of things going on right you got to think about the broader capital markets publicly traded markets and then you also have to think about industry dynamics who's getting in and out of the industry where are we from a consolidation perspective and so if you own a private business say you own a mid-market business in an industry that could potentially consolidate or is consolidating I think it's really important for you to pay attention to consolidation how many deals are actually going on in the industry that you operate in. If there's no deals going on and things are very very slow, um that's a great time for you to go out and do M&A. That's a great time for you to buy. When things are cheap, that's a great time for you to retool your business. When acquisition activity increases and there's more demand and less supply of acquisition targets, you're naturally going to see valuation multiples rise. And that's the time when you should wake up and start to think about maybe this is the time for an exit. And of course, it's impossible to call the top. And I find in my relatively brief experience of 20 years, these consolidation booms tend to last longer than any of us would expect. But inevitably, just like the dot bust when Halo Industries and Star Valley did their $240 million reunion, couple months later, that stock cratered like thousands of others. So, paying attention to consolidation booms are is important. And I will do a future master class on understanding how to better time the market and what to look at. Today I'm talking about valuation in general. Now let's go back to Jeff for a second. As you recall, we spent some time with Jeff. We did a preliminary valuation. His range was 100 to 150 million, right? fair market value to the top end of the strategic value range 100 to 150. So Jeff takes a look at this. We spent a lot of time thinking about how we can create value in the business. He goes back for a few years a few small acquisitions, decreases risk, increases cash flow, does all sorts of stuff to the business, comes back and man, he killed it. His range has now moved up. It's 150 to 200 as opposed to one to 150. He says, "You know what, Paul, it's time to pull the trigger." Well, inevitably what I would say to Jeff is that's great. Here's what I want you to do, Jeff. Take your mind off the business for a second and think about who the acquirers are for this business. Who would be the most likely buyers? Who has reached out to you over the years? Oh, Paul, there's I get 50 60 emails a year. So, okay, let's pull all this stuff together. We'll compile it and we'll take a look. But I really want you to think about who the best acquired. you've been in this business for longer than I have. Who do you think would be the right buyers? Okay, fine. So Jeff comes back with a list. He's got a huge list, but he says, "Paul, I think these six companies are the most likely buyers for this business. In fact, I think A and B here could create the most value by doing this deal." So Jeff is thinking about synergies that could be created. How can an acquirer cut some cost? How can they do revenue enhancements? How could they utilize some of this technology? All the different things. How how might this acquisition be defensive to them? In a lot of ways, the Starbelly acquisition was defensive for Halo. They were concerned that this innovative, disruptive business was going to eat up the market. So, by buying them, it was a defensive move, which is always great if you're a seller, if an acquirer is on the run is defensive. So he says, "Paul, acquire A and B. They're both publicly traded. I think that they can create the most value by doing this deal. They can cut the most cost. They can utilize my technology. They can get some revenue enhancements by cross-selling to my customers and their customers. So on and so forth. Great." So then we start to talk about the sellside process and we say, "Okay, we're going to take these six buyers here. We've got some here. You've got some other tangental ones. We're going to add them to the list. we're going to go out to 42 potential buyers with the sell side materials. And inevitably the Jets of the world will sit back and say, "Paul, sure, we can do all this work and go out to 40 different companies, but if I think these two acquirers could create the most value, and I think acquirer A really is the one that they've contacted us, they want it. I know they can create a lot of value. Why wouldn't we just go to acquirer A and see if they'll pay us 200 million bucks?" And while I I I think that that um makes a lot of logical sense, there's a couple problems with it. Um number one, we can never know the stories that the buyers are telling themselves, right? We know the stories we want them to tell, but we never really understand what's going on behind the scenes. And I'm going to give you an example of that. It's a real life example that I dealt with in 2019. I had a client who said the exact same thing. Paul, let's just go to publicly traded acquirer A. There were two other publicly traded acquirers in the market. Said, I don't really care for these guys, and quite frankly, I don't see them creating as much value. And I said, well, that's great, but we never know what's going on behind the scenes. And I think we should run a full process, which we inevitably did. And it wasn't acquire A and it wasn't acquire B. It was acquirer C that came out and put an astronomical number on the table. We closed the deal with that. And what we determined later, we realized that that company was having some financial issues and wanted to plug a hole in its P&L. So wanted to go out and do a massive acquisition. It was publicly traded. It was get towards the end of the quarter. They wanted to get it done. There was intense pressure to get the deal done. But they had some things going on behind the scenes that we didn't understand, didn't know about with regard to their upcoming year financial results which caused them to do something they otherwise wouldn't have done. Now, there's no way we could have known that, but had we just gone to acquire A and acquired B in that particular case, we would have left tens of millions of dollars on the table, right? So, we never really know what goes on behind the scenes. We don't know what's particularly defensive for an acquisition. We don't know how long an executive intends to stay around. Maybe an executive is thinking about retiring. The CEO is like, "You know what? I'm retiring next year and I want to get a slam dunk deal done. You know, I've been very successful at deals over the years. like I'm going to do a big one now or I'm going to do a series of small ones that are going to work out well for us. We never really understand true motivations behind the scenes. So, we always want to get full price discovery and talk to all the likely suspects. We never ever want to assume. Now, on the sell side, we can craft a narrative and we can hope they'll buy it. Sophisticated buyers will listen to what we have to say and then discount it accordingly. But we never will know the stories that they're telling themselves. We never know the CEO who's telling himself he has to do a deal or the CFO is telling the CEO, you know what, we better do this deal because if we don't get this, our numbers are not going to look right and our stock's going to crater next year. The other issue with just going to the one buyer is that if you're not running a full competitive process, more times than not, not always, but more times than not, you know, you're not putting an acquirer in a position to lose. Remember the sellside process is the battle between fair market value and strategic value. The acquirer is actually creating the value on a deal. Let's take the example of a transaction I recently saw in Asia. In India and Southeast Asia, there's a lot of call centers, right, that service Australia, the United States, South Africa, the UK. You got English- speaking folks in the Philippines, for example, that answer the phone. Hello, thank you for calling Chase Bank. These jobs are being replaced by computers. I mean, just get on chat GPT on your phone, right? You can you can conjure any sort of voice. Uh you can have a chat with it. It actually sounds like you talk to a person. So, companies that actually have that technology will not need all these people. And so an acquirer that had a tremendous amount of AI technology with regard to voice recognition and contact center center management looks at a call center that's been doing the same thing since 1982. 5,000 people in this big building answering the phone. This, you know, the acquirer doesn't need all those people. What it needs is the customers so it can make the acquisition of this company, get rid of thousands of people answering the phone and let a computer do it all night long for just the price of electricity. In that particular case, it's the acquirer that owns the technology. They're buying the target. They're getting rid of the cost. The acquirer is creating the value there. So, it's the battle between fair market value and investment value. And so why would this acquirer pay a full investment value unless somebody else was there waiting in the wings to pick it up for a price similar to what they would ultimately have to pay for it. You know, you need that competitive pressure and a process. And so that's why I always talk about you got to get full price discovery and you got to do it through an iterative process. And I won't spend a lot of time talking about that today, but I did talk about it in the cellside M&A master class as well as the psychology behind an M&A transaction master class. I can't tell you from experience although anecdotally more times than not I am wrong about which acquire prevail and process and I do this unfortunately seven days a week and my clients are usually wrong about it too. It is extremely difficult to realize who's going to not only create the most value from a transaction, have the willingness and the capacity to pay that price for it. And so that's why I always lean on full process whenever I possibly can because, you know, again, I just can't assume that I'm smart enough to determine who's going to be able to do that. And secondly, even if I know who has the capacity and willingness to pay and can create the most value, how the hell do I get them to pay that? Because every penny that's extracted out of this value creation zone, it's a zero sum game, right? Like, so you create this value in a deal that the buyer's arguing that the buyer is creating, right? They're the ones writing the check. They're the ones that own the business postc closing. It's the buyer that has to make all the changes. So to them it's value they create. We own that value. We should pay fair market value for it. That's not the way the world works. Unfortunately for buyers, they have to share that with the seller. Your goal as a seller is extract as much of that value creation zone as possible out of the deal. And how you do that is find as many of the best possible acquirers as you possibly can and run them through a competitive process to extract as much of the value creation out the deal as possible. I think one of the most important things for you as a business owner to take away from all this is number one valuation is subjective. It's not objective. There's no one going rate or one price for your business. Buyers are ultimately the ones that are going to understand the value subjectively. There is very little that you as a seller could do to really influence that, right? And you should drop your assumptions at the door whenever you get into a sellside scenario. You should not assume who can create the most value from the deal. And you should certainly not assume who has the most willingness to pay for it. You should use the process to determine that for you. And I can guarantee you, you guys do that, most of you will be surprised. What I hear most often from our clients here at Ptoic is the extreme value in working with us years in advance of a sale. Not only do we help establish a fair market value and a range of investment values for the client, but we provide them a roadmap of everything they could possibly do in order to increase value and decrease risk in anticipation of a future sale. If you've got a sale on the horizon, whether it be 6 months from now or 5 years from now, we'd love to have a chat with you. Please use the contact form below in the description to reach out to us today. and feel free to share this master class series with somebody who you think might benefit from it. Again, I'm Paul Jammore. Thank you for joining me today and I'll see you on the next one. You're