Even when shares trade at a low multiple, restarting a proven M&A strategy can be superior to buybacks. M&A drives faster growth, accelerates deleveraging, and enhances competitive position, leading to greater multiple expansion and long-term value creation.
Contrary to popular belief, AI disruption in fields like accounting may accelerate industry consolidation. Well-capitalized incumbents like CBiz can invest in AI to gain an edge, making smaller firms less competitive and creating a pipeline of attractive M&A targets.
The market penalizes even stable, cash-generative businesses for high leverage (e.g., >3.5x debt/EBITDA). This creates a "distress multiple," as investors price in tail risk from events like interest rate spikes. Deleveraging is critical to remove this discount and achieve multiple expansion.
In people-based industries, an acquirer's culture is a key differentiator. Founders of target firms will often choose a buyer with a reputation for valuing employees over a higher bid from a private equity firm known for cost-cutting, making culture a tangible competitive M&A advantage.
Large, premium-branded firms (like the "Big Four") are hesitant to leverage new efficiencies like AI to attack middle-market clients. Doing so would require price cuts that would cannibalize their highly profitable, brand-driven core business, creating a protective moat for tier-two players.
While AI may empower top-performing individuals, a firm can retain them by offering a diversified suite of services that a single person cannot replicate. Clients need a range of expertise (e.g., valuation, due diligence), making the institutional firm a more strategic partner than a lone superstar.
After a large, debt-funded acquisition, deleveraging should be the top priority over share buybacks. Choosing buybacks sends a mixed signal, disappoints investors expecting a return to the growth playbook, and leaves the company too financially constrained to pursue future strategic M&A opportunities.
A board composed of long-tenured, retirement-age directors with minimal stock ownership is a significant governance risk. This structure can lead to complacency and an inability to adapt to rapid technological shifts like AI, potentially prioritizing stability over shareholder value creation.
Issuing equity, even at a seemingly low price, can be value-accretive if the capital is used to de-lever. A cleaner balance sheet makes the company investable for a new class of institutional funds that avoid highly leveraged businesses, thereby expanding the potential buyer pool and removing a valuation discount.