$CBZ：停止回购，重启 M&A 飞轮？｜Reference Equity

I'm here at my parents' house in New Orleans, so I'm doing an offsite podcast today. But I think I've got a great podcast for you today. It's Ryan Bunn from Reference Equity, and he's got a really interesting proposal. We're going to be talking about CBIZ—the ticker is CBZ—and his proposal for changing the company's capital allocation. I'll include a link to the website in the show notes so you can follow it.

Basically, he thinks the company is buying back shares and that it should stop. He thinks CBIZ should restart its M&A flywheel, which it has historically done pretty successfully, at least until maybe the most recent deal. We'll talk about all that.

For those of you who know me, you know I am a sucker for share buybacks, though the shine has come off them for me recently. So instinctively, you say, "Stop the share buybacks and issue stock," and I say, "Ah!" So you're going to hear that. I might even make that sound on the podcast.

It's a wide-ranging discussion. We're going to talk capital allocation and 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 to think 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 a word from our sponsors. Today's podcast is sponsored by AlphaSense. Here's something I've been thinking more and more about recently. Most AI tools are very good at sounding right. The summary is clean, but can you actually trace it back to the filing, the transcript, the specific passage that drove the answer? Or you just trusting the confidence of the output? For investors, that's not a minor concern. My biggest worry is that I'm going to ask AI something and it's going to tell me something and I'm going to build investment thesis on it and then I'm going to find out, you know, six months later when I get smashed in the face that my whole investment thesis was wrong 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, AlphaSense 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, and they own the retrieval layer on top of it. That means every answer links back to an exact, verifiable source, because the answer is only as good as what's underneath it. And with AlphaSense, you know exactly what that is. See it for yourself. Try free trial at alphadashsense.com/yavp. That's alphadashsense.com/yavp, or see a link in the show notes.

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 in 1 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 CBIZ today, but before I let you explain what CBIZ is, I'll also note that you have done a deck and a website for the company, cuz you've got a proposal for them that we're going to discuss in depth in the 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 in 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, cuz I think the deck is quite comprehensive. The company we're going to talk about today is CBIZ. Even though it is CBIZ, the company, the ticker there is CBZ. If you're Googling around, it might take you a few times. I was like, "Why is nothing popping up?" The company is CBIZ, or CBZ if you want to go by the ticker.

What is CBZ, and why are they so interesting?

I have a long history with CBIZ. I first met the CEO in 2019, visited their headquarters a number of times, and have been following the company for coming up on 8 years now.

CBIZ is a simple business. They provide professional business services to middle-market customers. These services include tax, audit, accounting, payroll, and benefit services. Anything that you might need as a CFO or HR professional at a middle-market business, CBIZ can provide to you.

Today, they're present across the U.S. They operate out of 23 major metro areas, have 9,500 employees, and serve over 130,000 clients.

Just some quick industry context: They're in an industry that's dominated by the Big 4—Deloitte, PwC, EY, and KPMG. Companies ranked from number 5 through 20 in this industry are considered Tier 2 players. CBIZ is number 7, so they are a leader in Tier 2, which is important as I'll get into their differentiation and what makes the company such a high-quality business.

Perfect. I think this is really interesting in a couple of areas. The first is that share repurchases as a whole have kind of lost their shine for me over the past 5 years. I've seen one too many companies buying back stock at—let's just use Bed Bath & Beyond as an example—$45, and then 2 years later issuing as much stock as they can at 45 cents. I've seen that happen one too many times.

It was also the first thing when I saw an investor saying, "Hey, stop the buybacks and issue stock." My first instinct was to put a knife right into my gut. I was kind of nervous.

I want to break down each piece of your argument. The first issue is that you've got this management team, and they're pretty adamant. As you mentioned, the stock is trading at 9 times earnings. They think it's too cheap. They're taking all their cash flow, delevering a little bit, and buying back stock.

You're saying, "Hey, let's go and issue shares." My question is: Management has 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 that's somewhat against their self-interest because they get paid more if the company grows, isn't that screaming to you that these guys know what they're doing? They see what they're being offered, and their stock is the best value?

So that would be my first pushback.

Yeah. As you mentioned, there are many issues with buybacks, and a question is: when has the buyback been accretive? This management team was buying back shares in 2025 at 72, 67, and 52. There happened to be a few months, from February through June of this year, when they were buying back at 6 or 7 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. 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. On an unlevered basis, their M&A returns have been roughly 9% over the last 10 years. If they lever that return to, say, 1 time leverage, all of a sudden you can get into the 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. To the extent that their shares will continue to trade at 7, 8, or 9 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 get to the next one. Historically, this business has been grown over 20 to 25 years through lots of M&A, with the headliner being the recent Marcum acquisition that they did about 2 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 bought lots of things in an industry, and now, as you mentioned, they’re the 7th-largest player.

There are kind of the largest players—your KPMGs, your Deloittes—and then there’s 5 through 20. Well, they’re at number 7. When they were starting from nothing, there were lots of acquisitions. But I guess the next question would be: post-Marcum, are there really acquisitions out there for them? Because are they going to go buy Grant Thornton, which is probably the 6th-largest firm? Are they going to go buy them, or are there really synergies to continue to buy? I’m sure there are little onesies and twosies where they’re buying really small mom-and-pops, like a really good accountant or something, but I guess the second question would be, maybe they’re looking at the landscape and saying: hey, when we were number 30, we could go buy, but now that we’re number 7, maybe it’s just a different strategy going forward.

So, in my opinion, this is the beauty of this industry and the opportunity that CBIZ has. 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 tail of accounting firms out there, and it’s my view that industry consolidation will actually accelerate. Right now, you have 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 is only going to make small, subscale players less competitive in this space. So, in my view, 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 think the first thing an investor who’s listening to this podcast today—July 9, 2026—is going to think is: accounting, audit, all that sort of stuff. Probably audit less than accounting, but these are things that are right in the AI crosshairs, right?

When I listen to some of their calls, they 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.” 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.” Anything that’s going to be offshore is getting AI’d now. Amazon just shut down Mechanical Turk, which is not one-for-one, but very similar.

I guess my overarching question here—and we can get into specifics—is: how do you think about the AI risk here? I know in your slides, you say, “Hey, you guys shut off the M&A flywheel,” and the stock went from approaching triple digits to today, when it’s in the mid-30s, and you make that a one-for-one correlation. I do hear you; there’s a little bit of that. I think there’s a little bit of Marcum—they’ve even admitted they had some talent drain and some client turnover they weren’t expecting.

But I also think, if you laid this chart against Intuit or just the SaaS universe in general, a lot of the hit has been: hey, this used to trade at 18 times because we thought this was recession-resistant, and everybody would always need accounting. 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 it relates to CBIZ?

Yeah, it’s absolutely a risk. I will circle back to capital allocation later, but being at 3.5 times leverage when there’s this existential risk is not where you want to be, right? Their share-price reaction is a highly leveraged version of many of the other businesses that you mentioned as well.

I’m in Denver, Colorado. I’m not in Silicon Valley. I’m not going to give you 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 that there are 2 things going in CBIZ’s favor. First, they’re in effectively regulated industries. Businesses cannot audit themselves. CFOs, particularly in the middle market, want a trusted adviser who they know to tell them that their taxes have been filed appropriately and that there’s someone helping them out with these regulated and essential business services.

The other way I’ve been thinking about AI is that even before AI emerged, I think investors were starting to appreciate the value of customer connection. Who is best positioned to support clients and maybe lead the implementation of AI workflows? It’s going to be the businesses that actually work with these clients every day.

So, CBIZ, with its 9,500 employees and 130,000 clients, has 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. If I’m going to take the opposite AI bet, I like it to be with a business that’s in front of its customers, providing an essential service, and 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 maybe implement this as well.

No, look, I think you’re spot-on about something there, but let me try to push back a little bit here, because I do worry. You’ve got, as you said, this is in the middle of the accounting firms; they target the middle market. When I listen to some of their calls, they say, “Hey, we think we’re going to be an AI beneficiary because we’re going to be able to invest a lot in AI.” If you think about a mom-and-pop that might be competing with them, the mom-and-pops won’t be able to. So, they’re going to be able to go steal a little bit down market or in smaller markets just because AI means they can automate a lot of the back end. Maybe their top people have a little bit more time, so each of them can take on 1 or 2 more clients, and they can grab some smaller clients. That’s roughly right.

I hear that, but I guess my fear with AI—for these guys in particular—would be: okay, if they’re right on that, why couldn’t KPMG or Deloitte, or one of the Big Four, have the same thing apply to them? Why couldn’t 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, CBIZ can go to the companies that firms 21 through 5,000 were targeting, but all of a sudden KPMG is going for the companies that firms 5 through 20 were targeting, and you’re kind of ceding share to the bigger guys who can use AI more efficiently. 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. I think there are maybe 2 things to unpack in there. The first is that, as you're describing this, you're ultimately describing industry consolidation, right? If number 5 through 20 can service the customers that 20 through 200 used to service, there's going to be massive consolidation, where you can put the very small mom-and-pops out of business and, as you described, potentially the Big Four comes down.

The Big Four is kind of a unique industry in and of itself. The Big Four have brand recognition that allows them to charge a premium for their services, and it makes them extraordinarily profitable. 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 20% more because, at the end of the day, it's $1 million or $2 million. You can pay that.

I actually think if AI starts to reduce prices, maybe it will hurt the Big Four first. I think they're going to be much more hesitant to cut their prices to attack these middle-market clients because of the profit pool that they serve by leveraging their brand.

That's great. Let me go to the other side of the coin, and I'll come at it from a different angle. The worry with a lot of these businesses is the old Warren Buffett thing: “Hey, the talent walks out the door every night,” right? Whether you're KPMG or Marcum, the guy who is the head of your accounting department is the moneymaker. He's the person people are going to, and if he left, he'd probably be able to pull a lot of clients with him, right?

When I look at, let's choose Marcum, number 5, I worry: Why does the best accountant join Marcum? Marcum is going to give them a big salary, but they also want the back office. They want the support, right? My secondary worry with AI would be that, as AI makes a lot of the support that the small mom-and-pops could not do on their own much easier—the support that you needed to go to Marcum or KPMG to get the scale for, that type of stuff—all of a sudden, you're left with the superstar accountant looking and saying, “Hey, I can stick with the number-five firm, or I could go be my own firm, hang my own flag, and my clients come with me. 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.”

Even if they don't do that, they're always going to Marcum saying, “Hey, I am the star. The clients are coming for me. I want a bigger cut of the revenue. I want more than my share.” I just really think the economics are pulling more toward the producer, the actual superstar, versus the firm level.

I'll just build on that and say it's not lost on me that private equity is rolling up a lot of the mid-tier players. You've got CBIZ here, I think Baker Tilly, Grant Thornton—a lot of them. But it's not lost on me that the Big Four are partnerships and have always remained partnerships, and I think part of the reason is that all the economics accrue to the guys who are there, who are actually producing. Once you start having financial partners, the economics just don't work because the accountants sit around and say, “Who's this guy? Why aren't we giving him any of the money? We're doing all the work.” I threw a lot out at you, but I'd love to hear how you think about those risks.

Yeah. It's interesting because CBIZ has been dealing with this risk for over 20 years. You're right: private equity roll-ups of people businesses, whether it's doctors or vets or many other industries in this way, are often challenging when it comes to retaining the people.

In this case, I actually think there's a dynamic where the suite of services that CBIZ offers is more than an individual producer can replicate themselves, and it allows CBIZ to actually be, as a firm, a strategic partner to its clients. For instance, a middle-market business might use CBIZ for its tax and accounting, and maybe that's 1 person that they know. But if they're going to open a facility in Mexico, they can call CBIZ and have someone talk them through customs and other issues with that.

If they're going to do an acquisition, CBIZ has a valuation and due diligence practice. If they're going to do digital assets, this is 1 of the capabilities that CBIZ picked up in the Marcum acquisition. There's a whole suite of services that these middle-market businesses need as they grow, and it's a suite of services that the individual accountant cannot provide.

I actually think that, over time, serving this middle market is going to become more institutionalized in the way that CBIZ has built its business, and it's less about the individual producers. I mentioned before that the culture they have is a great culture. People like working there. Historically, they've paid 75% of their revenue out in terms of compensation.

Ultimately, CBIZ is a great place to go if you're a little burnt out at the Big Four. Maybe you've gotten paid for many years, you've enjoyed it, maybe you're not going to make partner there, and you're getting tired. You want to have a family, have a great life, serve clients, and have the suite of capabilities behind you. They've crafted a nice niche, I believe, as a place where talent wants to settle down.

If you look at their investor decks, on 2 of the 20 pages they've got a bus, and on the side of the bus is an ad for CBIZ. I laugh, but I see that bus twice a year driving around Midtown Manhattan. As soon as I saw it, I knew exactly what it was.

Let me ask you a different question. Your argument is, “Hey, we want them to restart the M&A flywheel,” right? I definitely hear you. Until recently, that M&A flywheel had served them really well, right? But we might as well talk about the Marcum deal. The Marcum deal was done about 2 years ago—a $2.3 billion deal, cash and stock. I think it was the largest accounting deal ever, if I can trust my AI overlords, which I used to help me prep for this podcast.

They love it. You read their earnings calls, and they say, “Look, especially in the back half of last year, we had more client attrition than we thought. We had a little more internal attrition than we thought, all this sort of stuff. We're working through that.” They're saying, “Our numbers in the back half of 2026 will be better,” in part because they're kind of annualizing that number. They're starting to say that's behind them.

I guess it just says they did this deal and levered them up, as you said. The stock is down 70% since they did it. Margins have compressed. Would you, if you were them, do the Marcum deal over? Or, if they were kind of given a mulligan, do you think they'd take a mulligan?

That's an interesting question, and I don't know. On the 1 hand, from our stepping-off point today, it's a fact that they did it, so we don't necessarily need to relitigate it.

But I think, as we talk about capital allocation, I have a different view than most. When I think about the way they should allocate capital, 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.

When you think about the Marcum deal, it brought CBIZ a presence in New York City, where they were not previously. It added a lot of scale to the business and a number of new capabilities. I mentioned digital assets and cryptocurrency, along with some new services they can cross-sell into the rest of the country.

Strategically, this deal is hugely beneficial for the business, especially as you think about the need to potentially invest in AI and be a thought leader nationally on some of these new and emerging topics. It brings them a lot of talent, and it brought them to number 7 at the upper end of tier 2. I like that competitive position much more than being number 12 or 18. Strategically, I see the fit.

The returns are not where they want them to be. When you think about the share price, 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. The stock was trading 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 at a different position, and you'd be looking forward to an exciting future.

I agree with you, but there are 2 things to push back on there. Yes, obviously the stock has gone from $60 to $30. Obviously, if they had sold more stock or done less, it would be better because then they'd be less levered up.

But I guess the 2 things that I'd push back on are: I definitely hear you that it works strategically for them, and I don't know how much of the drawdown from $65 to $35 was caused by SaaS or by the AI apocalypse.

I think a lot is actually the AI apocalypse versus the Marcum acquisition being disappointing. But the first place this goes is, “Hey, they just did this huge deal that you said was strategically important in a lot of ways.” And you’re looking for restarting the M&A flywheel, right?

I kind of look at it and say, “Well, the purpose of the Marcum deal was to fill out a lot of the strategic holes they had, right?” So, you’ve kind of got the strategic holes box checked. You’ve got the scale box checked at number 7. And they say, “By the way, the Marcum acquisition, it doesn’t seem like it went that great.”

So, I kind of look at all those and say, “All right, the strategic goals of what they said they were doing with the Marcum deal are checked. This is integrated, but it doesn’t look like it went that well. So, why do we want to reload the gun and let management go, whether it’s elephant hunting or squirrel hunting—you know, elephant hunting is big M&A, or squirrel hunting is just lots of smaller deals?

“Why do we want to let them reload that gun? Because we’ve kind of already checked the strategic boxes. We’re scaled. We’re in New York City. And we’ve already seen that this management team maybe can’t integrate, maybe overpaid, or maybe it didn’t work. So why do they have the right to go do this again?”

Yeah, my view is that there’s not another elephant out there that they would be going after. The purpose of this would be to get back to the other 79 deals they’ve done over the last 20 years, which were small deals done between 6 and 9 times EBITDA, very accretive, and easy to integrate.

You immediately start cross-selling into these businesses with your suite of capabilities. That ability to deploy cash flow in that way is what enables the business to compound capital for shareholders. I’m not advocating for them to go buy the number 8 or number 9 player. The point is to go buy one of the many hundreds of smaller players who are increasingly competitively disadvantaged and willing to sell.

The other thing with buying is that it depends on how competitive the landscape is, right? If you’re the only natural buyer for a company, you’re probably going to get to keep the vast majority of the value from the synergies because no one else has them.

Here, you look and say, “Hey, for the past 20 years, these guys have done a nice job with bolt-ons.” But you look at the landscape today, and a lot of the mid-tier firms are private-equity-backed and are aggressively rolling up players.

So I do wonder: The fact that this space has gotten so hot and heavy with private-equity players, are we going to be able to realize the same equity returns going forward from M&A? Maybe 15 years ago it was a much sleepier business, and people weren’t stepping over each other. Today, every time any mom-and-pop raises their hand and says, “We’re for sale,” there are 4 private-equity-backed players in the room right away going for it.

So I guess, is there a secret sauce here that says, “Hey, we’re advantaged”? Or are we just the fifth guy in the room, where the high bidder wins and we get into winner’s-curse territory?

This again goes back to the culture, which is actually the unique and differentiating aspect of CBIZ. The reason many companies sell to them is because CBIZ isn’t looking just for synergies. They’re not looking to simply slap on scale and sell to the next private-equity player.

Historically, they’ve acquired with cash. They’re able to give you stock and earn-outs, and retain all your employees. So if you’re a founder of an accounting firm and you’ve got a dozen employees, you’re putting their careers at risk if you go the private-equity route. They will have a great home at CBIZ.

CBIZ has been the acquirer of choice in the industry. Today, they’ve jeopardized that with their high leverage and the declining share price. It’s not interesting getting CBIZ shares if they’re going to go down 50%.

Overall, I actually think they’re very favorably positioned. As interest rates have risen over the last few years, it just makes the math harder for private equity. For CBIZ, someone who can purchase with equity, the math is the same.

This is why I’m choosing this moment to really push the company to get back to its roots, because it’s my view that the M&A opportunity over the next 3 years is going to be enormous. If interest rates go up, you’re going to have these private-equity-backed players potentially selling in distress. Well-capitalized businesses that can take advantage of dislocation are going to do wonderfully, and today CBIZ is a fragile business with its balance sheet and doesn’t have the opportunity to do that.

Let’s talk about the stock. It’s in the 30s as you and I are talking. Let’s quickly talk about it. The company is buying back shares because they say they think it’s undervalued. Obviously, you’ve got a position, and you’re pushing them to restart the M&A flywheel because you think that’s the right move.

How do you think about valuation here? I guess we can branch that into 2 forms: How do you think about valuation on the standalone path that they have laid out, and how do you think about valuation if they follow the path that you’re laying out, where they go and restart the M&A flywheel?

Yeah, that’s a great question. Today, at 9 times earnings, or 9 times free cash flow, there’s an open question: Is it a good stock to buy? The issue is, at 3.5 times leverage, do you like this risk?

Every time oil spikes, there are inflation worries, or interest rates might go up, and the CBIZ stock trades down. As an equity investor, I don’t really want to be betting on interest rates, and this is the problem I have with the business today.

If CBIZ had lower leverage, I think the valuation would be screaming cheap. If this were a business with no debt at 9 times free cash flow, you would be buying shares hand over fist because you have the optionality going forward with this business.

I’m a shareholder today because I believe that they will pay down the debt and fix the business, hopefully before anything disastrous happens. So I view it as an attractive opportunity.

Pivoting to capital allocation, with a business trading at 9 times earnings, there’s a clear path to compounding your capital at double digits. If CBIZ simply buys back shares for the next 2 years, they will repurchase 11% of the business each year at 9 times earnings. That should give you a 22% return over the next 21 months, if that makes sense.

Basically, what you’re going to have happen is that the share count goes down and earnings per share go up. They go up 11% a year, roughly. If your multiple stays the same, you’ll earn that 11% return.

The way I’ve laid that out, I’m assuming that’s what you think when you think about the accretiveness of buybacks. Is that fair?

I think if you put CBIZ management in front of this, they would probably push back and say, “Well, we’re talking about mid-single-digit growth as well. So we’re buying back at 11%. We do that for 2 years, and we grow 5%.

“By the way, our stock’s undervalued, and as the market comes to see, ‘Oh, this is not AI roadkill,’ the multiple is going to expand from 9 to 12.” So I think they would paint you a picture of 11% free cash flow growth, plus 5% organic growth, plus 5% multiple expansion, which gets you to 20% annualized over that time.

I think that’s what they’d say. But, yeah, you laid it out correctly.

That’s very fair. The reason I would share all of that is because that’s my base case, right? That’s close to what they’re doing.

They’re not going to buy back 11% of their shares because they are simultaneously paying down debt. That is less accretive because their debt costs 6.5% on the interest line. Ultimately, the combination of buybacks and debt paydown they’re doing gets you to roughly an 8% return, not 11%.

To your point, you can add 5% for growth. Then, if there’s any multiple expansion, you’re comfortably in this 13%-plus compounding range from here. As a starting point, I think that’s a pretty good base case.

We’re kind of ignoring the risk of a blowup, but maybe that’s why it trades at 9 times free cash flow. So I find it to be a pretty attractive buy in that sense.

But I want much more from CBIZ, I guess. We kind of laid out that math. If you think about them taking all the capital they’re going to use to buy back shares and deploying it via M&A instead, and they make a 9% unlevered return on that, this compares to your buyback return of 11% today, right?

It’s not as accretive, but you have a number of other benefits that, in my view, actually make that little 2% delta irrelevant. Just for context, if you compound that 13% versus 15% over the next 2 years, you’re talking about a couple of 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 deleveraging. When you accelerate your deleveraging, you're going to get more multiple expansion because you're reducing the risk in the business. 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, when I talk to people and say, “Yes, EBITDA grows 5% at this business,” who cares? I mean, you've got AI winners 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.

Then strategically, 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, and you're enhancing your competitive position with M&A. So, it's all those more qualitative pieces of capital allocation that, to me, are essential.

If you think about this business 5 years from now, if they continue trading at 9 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 still going to own a business that has a $2 billion market cap, 3.5 times leverage, and grows EBITDA 5% a year. Whereas, if you do M&A, if you think 5 years from now, you're going to have a business that has doubled its EBITDA, is growing EBITDA double digits, has completely delevered, is leading in its competitive landscape, and has another 5 years of growth ahead of it.

When I picture these scenarios, I think if you buy back stock, your multiple is going to be 9, 10, 11 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, a lot—I mean, a lot there. I guess the first thing: it seems to me like, because you say they're going to grow EBITDA. And yes, if they start issuing equity to grow EBITDA, they're going to grow EBITDA. But at no point did we start talking about EBITDA per share, right? EBITDA per share is a little bit of a funky metric to use. But I think what they would argue is they're basically following the Teradyne model, right? Our shares were rich a few years ago, and we're doing M&A like crazy and issuing stock. And now our shares are 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 9 times free cash flow to buy other businesses at 9 times free cash flow after synergies—we're buying worse businesses than us with our shares, which are cheap. That's not super great, and we're not growing the EBITDA per share, free cash flow per share, whatever you want to call it, because we're issuing stock for that, right? Pushback there.

I think the other place they would probably push back—I would probably push back—is you're really assuming multiple expands because leverage comes down and because they're just doing this inorganic growth, right? That's a huge assumption on your end, and I don't know. I actually think, obviously, if they're doing hugely accretive M&A, people would start building that flywheel. But it does seem like a really big assumption to say, “Hey, if they start doing inorganic growth and they delever just through the inorganic growth and issuing equity, their multiple goes up.” That seems like a very, very big assumption.

Okay, so let's spend a little bit of time on this, because they traded at 9 times earnings today. 3 months ago, they traded at 6 times earnings. So, why was the market saying they're only worth 6 times earnings or 6 times free cash flow?

The market is actually very good at pricing credit risk. Most of the greatest investors have this heuristic where they don't like debt. They like unleveraged businesses. They talk about this all the time. And the reason is, it's very hard to quantitatively price the risk. What is a business that has 1.5 times leverage, or 2.5 or 3.5 times? How many multiple points is that worth? I read a lot of investment books. None of them lay out 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. So, if it's the 1980s and Fed funds go to 10%, this business is zero. If they only have 1 time leverage, they're fine. It's a completely different outcome. It's completely skewed.

So, in my view, the market is very clearly telling this business, “We strongly dislike you at 3.5 times earnings.” And so I believe when they delever to 2.5 times and ultimately, hopefully, below 2 times, there will just be multiple expansion that is simply pricing that reduced risk.

Let me ask you differently. 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 this: the market today, you're saying, is putting a distress multiple on this at 3.5 times leverage, and you think the multiple will expand if they lower 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 debt really quickly if we just divert all of our cash flow to this. We don't really have a lot of recession risk. 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 of the leverage. Now, that does somewhat relate to the distress risk, but I don't think paying down that debt—the market has never cared about leverage at this level for this business before.

I don't think paying down debt and deleveraging here is some panacea. Corporate finance would say the leverage here is actually good because it serves as an interest tax shield, unless it gets too high and then you start saying, “Hey, they're starting to price in bankruptcy costs.” But I see what you're saying, but I do think part of it is 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 down the debt.

Well, maybe just looking through the history of the share price. And so, you're right. I cannot extract the AI impact. But at the time of the deal, when the business traded at $80 a share, the market did not sell off. The reason was they committed to deleveraging rapidly. And implied in that was, “We will delever and we will continue our M&A strategy,” right? “We will delever and then go out and do more M&A.”

Under that capital allocation plan, you could underwrite double-digit earnings growth into the future. Maybe 2025 was a year off with integration and deleveraging, 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 pile capital back into the industry.”

They made a misstep by buying back $160 million worth of shares in 2025 and not delevering. The business today could be sub-3 times leverage. They could be doing M&A today. They made this misstep. 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 2026. They might get back to it in 2027, but they need to hit their leverage target over the next 18 months. They need to pay down about $325 million of debt.

Here is where the capital allocation plan disappoints the market. You're thinking about them buying back shares at an 11% return. Mathematically, that's right. They could do that, but they're not going to do it. They have committed to paying down debt to 2.5 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 60% to 70% of its free cash flow into paying down debt that costs 6.5%. So, no shareholder is very excited. That's a 6.5% return on invested capital. That's what they're going to do with most of the debt. That is when the shares start to trade off.

Equity investors hate paying down the debt 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 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 6.5% on the debt side, with a little bit of buybacks; you're going to earn 8% a year. The market's not excited.

Let me switch to a different topic. The management team here—the CEO, I think he's been here for 20 years.

He was the president, and then I think he took over as CEO in 2015. I'd love to get your thoughts on the management team, the board, and alignment. Then I do have a follow-up question on that.

Great. I really like the management team. The long-term history of this business was that it was private-equity-backed in the late 1990s. They did 150 acquisitions to build scale, and I believe Jerry Grisko was an advisor to their M&A at the time. That business basically blew up in the tech bubble.

In early 2000, the Fed funds rate was about 6.5%, and 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 has been familiar with it for a very long time. I love what he's done. He's been with the business for over 20 years, and he's helped to build this culture.

He understands that culture is what allows them to be an acquirer of choice, to integrate successfully, and to retain the talent they're buying. He built the flywheel, so 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: capital allocation is extremely complex. It's so easy for us on podcasts. It seems like there are just 4 options: dividends, buybacks, M&A, and capital expenditures. It seems so easy, and we always talk about compounders—the 3% of businesses out there, like Teradyne, that have done magical things with capital allocation.

In reality, most businesses don't do a good job with this. This is why return on equity for the indexes is below 10%: they don't allocate capital well. I'm asking them to make this capital allocation change and get back to their roots. I think the management team is well placed to continue rolling up the industry and are great leaders of the business.

You mentioned that the management team is well placed. One of my concerns when I was looking at this is the board. It's not nothing in terms of insider ownership; I think the board owns about 4% of the company, which is pretty good. But I look at this board and say, "Oh, cool. It's an 8-member board, I believe. The youngest person on the board is 61. It's a staggered board. Six of the 8 members are of retirement age or older."

I look at this board and say, "They don't have huge insider ownership here, right?" This is a people-heavy business, but it's also increasingly a technology business. As we mentioned, with all the AI, you say, "Oh, cool. You've got a lot of long-tenured, very old directors."

Is this a board that's going to have shareholders' best interests at heart in its capital allocation decisions? Are they going to be evolving with the times? An accounting business in 2001, when many of these directors joined the board, looks a lot different from an accounting business today—and probably an accounting business in a few years.

Are these the right people to be running that strategy?

I hate to be ageist—I always feel ageist—but I worry about boards where a lot of the members are older and don't have a lot of ownership. I worry that it's serving as a semi-retirement fund, not as a commitment to stay on the cutting edge as things evolve really quickly.

I'm not going to argue with you on that. This is a Cleveland-based business. Presumably, they're all good friends, and they've been there for a very long time. Things were going swimmingly until about a year ago.

I imagine that our discussion on capital allocation was probably more in-depth than what's been going on at the management and board level. This is why I'm being public about my proposal: I'm trying, as a shareholder, to have a strong voice here and say, "Get back to what works. Be a little bit more prudent and a little more risk-averse with shareholders' capital."

Last question here. If I go through your slides—and anyone can go to the website and look at them; I think the website and the slides you produced are quite in-depth—the core of your proposal is to restart the M&A flywheel, right?

But part of your proposal is to issue equity right now. I worry about that. Obviously, we might have differing views on repurchasing our shares versus issuing equity versus restarting the M&A flywheel.

If they issue equity right now, there are going to be bankers' fees, and they'll have to take a discount. Even if it's only 5% of the company, they're going to have to take a discount and deal with all that sort of stuff.

Historically, the way they've done M&A, whether it's Marcum or any of these, as you mentioned, is that they pay some cash, some stock, and some deferred stock, because these are people businesses and you want to incentivize them. What's the need to issue equity when, if they want to say tomorrow, "We're not buying back shares; we're restarting the M&A flywheel," leverage starts to tick down because they're growing earnings, and they're going to generate a lot of cash, so they can delever on that?

Whenever they find a target, they can just say, "Hey, take our stock. Instead of doing the stock offering, we'll just use our stock." Why go for an equity offering versus deleveraging and waiting?

The other nice thing there is that with an equity offering, your hands are kind of tied. You've diluted yourself, and even if you can't find something for 3 years, that dilution is there. If you use equity as part of a deal, not only do you incentivize the seller, but you can also wait to issue the equity until the deal happens. So why issue equity now?

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. First, when I think about them issuing equity, this is not a distressed equity sale.

My proposal is for the management team to work with me, get in a room, and maybe have a banker facilitate a conversation with high-quality, long-term investors who are willing to understand the business model and are excited about the opportunity. I believe you can find those investors to come in with equity, not at a discount and without paying huge banker fees.

The reason is that this business, as an investment, is completely different at 3.5 times leverage versus 2.5 or, say, 2.9 times leverage. There are many investors who are averse to 3.5 times leverage. That's why they're not buying shares in the public market. Anyone can buy shares, say, at $37.

I would almost be willing to pay $40 a share if the cash went onto the company's balance sheet and delevered the business. 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 idea is not to raise equity and sit on the cash. This would need to dovetail with the company's M&A pipeline. If you had a shareholder base willing to finance shares with equity, you could wait until you had attractive opportunities and sell the shares that way as well.

It's not a proposal that they have to issue equity today. It's more about how they get back to M&A and what's the fastest way to do that.

Isn't bringing in long-term shareholders with a banker a little pie in the sky? This is a completely different thing, but I can't tell you how many times I've seen a busted biotech or a little tiny company trading way too cheaply. In a lot of the busted biotechs I've seen, some are trading at 80% of net cash.

They do an equity offering, and you go to them and say, "What the hell? You just diluted shareholders at 70% of cash because it's always at a discount, right?" They'll say, "We had this great shareholder. He's a super-respected health care investor. He wanted to join the shareholder roster, but the shares were too illiquid, so we had to do it."

I'm like, "Your stock was trading at $10, and you had to issue equity at $8—which, by the way, is 70% of cash—to get him on?" And they just shrugged their shoulders. They don't care.

I can't think of many examples where this works. What are these long-term, patient investors saying? They have limited capital, right? There aren't a lot of them, and they have limited capital.

I'll point you to Wix, which I don't think has worked out well. Earlier this year, Durable Capital came onto their roster, and what did they come onto the roster with? The stock was at, for memory, $90, and Wix said, "Oh, we're getting this great investor in." They brought him in at $75 with a warrant kicker.

So you got something like a 20% discount on the stock plus a warrant kicker. You bring Warren Buffett onto your shareholder registry, and it sounds great. But guess what? He charges you 2008 Bank of America terms: 6% preferreds plus a warrant kicker.

Do you have an example of a company where the business is so good that long-term shareholders came and put money directly onto the balance sheet at or above the share price, ignoring the bankers’ fees and without a meaningful discount? Because it seems like they’re in the pole position to demand a discount in this world.

Yeah, I think you can take comfort from my discussions with CBIZ that they’re not interested in selling shares at a massive discount, right? Their business is not distressed. They’re not burning cash. It’s not the GFC era with Warren Buffett. So they have no desire to do what you were describing, which is good for shareholders.

There was an example recently where 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 the business, to them, was overlevered. They weren’t interested, but bringing in primary capital made them interested in the business at a different multiple.

Again, it’s very hard to qualify this, but if CBIZ had no debt, they would not trade at 9 times earnings. I would imagine they would trade at 11 or 12. So paying down debt does literally reduce risk and create option value for the business.

For shareholders to have the opportunity to bring that capital, I think it would be very attractive. Again, I’m not really proposing that bankers round up these investors. I know many of these investors. 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 3.5 times leverage. But if their capital brought the leverage down, it would be an investable business for them trading at a great price, and that’s what I’m encouraging management to have some discussions about and consider where they could find this capital.

But honestly, even stepping back from the equity raise proposal, the most important thing is that CBIZ stops its very muddled capital allocation policy now. Paying down debt for 2 years, buying back a few shares here and there, and not growing—or growing even at 5%—is 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, 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, I’m fine with.

Cool. I think that’s a great place to wrap it up. We’ve been going for an hour. The only other thing is that now I really want to look at FMC, because I was just flipping through it. I can’t believe the stock is at $10 and they issued 20% of the company at $13.30. That is a fascinating deal, but probably neither here nor there.

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 host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.