Shortcomings of the EBITDA Multiplier

David keeps getting asked: “what multiple are you seeing these days?” As if there’s some simple, magic answer that’ll lead to a company’s value. EBITDA is a great tool…but an incomplete one.

Transcript

Blair: David, our topic today is earnings before interest, taxes, depreciation, and amortization, also known as EBITDA or EBITDA.

David: EBITDA, EBITDA, either one. How many times did you have to practice saying that before you've got it?

Blair: I didn't practice it. I think it showed because we never say it, but what I'm curious about is the pronunciation because I hear the inflection, the emphasis on different parts of that. I call it EBITDA. Some people call it EBITDA. Some people make the distinction between the T and the D very clear and say EBIT-DA like it's two words. What do you call it?

David: EBITDA.

Blair: EBITDA.

David: You want to spend 30 minutes of people's time talking about how to pronounce it. [laughs]

Blair: Our topic today, dear listener, is shortcomings of the EBITDA multiplier. What the hell does that mean?

David: Well, the secret reason why we're doing this is so that I won't get any more calls from people saying, "Hey, what's a typical multiple nowadays?" As if that will answer all the questions. The overall theme is-- This could get pretty technical mixed with some really pedantic stuff, so I hope we don't lose too many people here.

Blair: I'll keep you high level. When you start boring me, I'll just pull you back. Taxes. We're talking about taxes and math. I'm just going to doddle while you talk.

David: Yes, I'll be listening to this episode when it comes out and I'm thinking, "There's no audio of me in here. It's all just Blair." The overall theme is EBITDA, I'm just going to keep pronouncing it that way, is a really useful tool. It's always going to be a really useful tool, and it's one you ought to concentrate on, but it's not enough. There are some real shortcomings to that. We'll get into that. I'm not trying to pull the rug out from EBITDA. I'm just trying to help people see that it needs to be understood in the larger context, but probably people don't even know what we're talking about yet. What is EBITDA?

Blair: Yes, let me explain. You and I and a few other people are in, what my family calls, the teenage girl text thread, where we're constantly texting each other. Every once in a while, somebody will say, "Hey, did you hear this firm sold?" Somebody will say the price, and somebody else will say, "What multiple?" What they mean is a multiple of earnings, the multiple of EBITDA, or EBITDA, if you're Canadian. We use that shorthand amongst us, you and me and some other friends, some other business friends. Then, well, here's the multiple, and then here are the qualifying factors because the multiple, I think your point is, it's a good starting point. Usually not always, but there are all kinds of reasons why you can't just go on the multiple. We're talking about valuing a company.

David: All of that feeds the price, but often, this just reiterates your point with slightly different languages. The price is really important, but the terms are sometimes even more important. In EBITDA, multiple doesn't say anything about the terms. Let's say we're in that text string and we hear, "Oh, that was a great multiple." For instance, a firm just sold to a large holding company at a multiple of 17. That really happened.

Blair: 17 times earnings, okay, because when I hear that number, it's like, "Oh, my God. There's a big long story with lots of reasons why that multiple is so high," because the typical multiple is what?

David: Four to six.

Blair: Yes, so four to six times EBITDA, earnings before interest, taxes, depreciation, and amortization.

David: Just backing up a little bit, what's the difference between your EBITDA number and your net profit number? Well, your EBITDA number is always better than your net profit number because you are getting credit for four things that are either deducted from your expenses on the income statement. That's usually the way it's done. Although sometimes it's added to your net profit, but either way, however you do that, your EBITDA is better than net profit. It's higher and that's because EBITDA looks at your earnings before four things. Your EBITDA, your net profit looks at your earnings after these four things. Those four things that are in play here are interest, taxes, depreciation, and amortization.

Anyway, that's what's happening. You asked a question a second ago about what's the typical multiple and I said four to six. That has changed radically over the last two decades. I've done 170-plus deals. I've got eight deals in the works right now, five that are traditional M&A, one on this buy-side, four on the sell-side. Then three internal transfers. A lot of this work is still happening. I'm in it all the time. What has changed is the typical multiple range.

In the past, the multiple was always four, [chuckles] you just didn't need to think about it. You could look at a valuation and say, "All right, where is the four? It's always there." It was monolithic, every deal was a four. Nowadays the range is anywhere from two and a half, which basically sucks, all the way up to 17, the highest I've seen, but the vast majority of those multiples are in the four to six range. Again, this just impacts the price though, not the terms, and terms are more important than price.

Blair: If we go back a little bit in time when the multiple was always four, is there an assumption that EBITDA as a percentage of revenue in that number? The reason I ask is a few years ago I met a guy who used to be a mergers and acquisitions lawyer and he bought an agency, and my second question after, why the hell did you buy an agency?

[laughter]

Blair: What were you thinking? I said, "Hey, so you used to be in the M&A business, how do you value an agency?" His answer was one times revenue. That answer of one times revenue probably correlates to a multiple of four times earnings at a 25% earnings rate.

David: Yes, exactly right. Yes. In fact, I'm kind of snickering because one of my competitors who's no longer in the business used to charge $1,500 for a valuation, and the valuation was always one times AGI. [chuckles] I'm just thinking, okay, I think I could have figured that out. After careful analysis, your firm is worth one times AGI-- Okay, here's your bill.

Blair: After careful analysis by the market you're no longer in business as an M&A advisor.

David: Yes, but the way you just described it is true. If you say that the target of a firm is 25% net, 25% of your fee base would be net, and if the expected multiple is four, then you can think of that as an inverse multiple. 4 X 25% would be 100%. If the firm is 25% profitable, then four times that should equal what the total AGI fee is. Another way to look at this is, just think about the risk associated with this. I'm leaving out the MBA stuff, some of you studied around internal rate of return and you remember those calculators that you had to drag in because it was too hard to figure out otherwise, I'm ignoring all of that, but essentially if you look at buying a firm at a multiple of four, let's compare that with buying a firm at a multiple of 10.

If you're buying a firm at a multiple of four, you're assuming that the inherent risk in this transaction is about 25%. In other words, one in four firms are going to go bad, that you're buying. It's fairly risky, you wouldn't go out and borrow money at 25%, that's essentially what's happening here. If you have a multiple of 10, you're saying, "I'm going to pay a lot more for this firm because of whatever and there's much less risk in this transaction. I'm assuming that I'm going to get a rate of return of 10% on my capital." Only one in 10 of these firms are going to go bust in a transaction. It's just a different way to think about it because people don't really understand how an EBITDA multiple fits within the bigger picture of finance or where even this came from. It's just an easier way to understand it.

Blair: Okay, just to clarify some terms. You have a list of things that affect the EBITDA multiple-- I guess that's what you'd call them, adjustments that you would make on your rough shorthand, but there are some things that need to be clarified first. EBITDA is always a lacking indicator, so you're always looking back, it's trailing earnings rather than forecasted earnings, correct?

David: Right, and sometimes you'll see an abbreviation of TTM, which stands for Trailing Twelve Months. If you're selling a firm and it's June, then you might look at what's happened over the last 12 months all the way through June of last year, which would-- especially if your firm is growing, that might really benefit and jack up the price because you're not relying on something that happened that long ago, or sometimes that's abbreviated as Last Twelve Months, LTM. While mostly an EBITDA's applied to historical results, actual results, there is more and more of a trend to say, okay, what's your forecasted EBITDA?

You have an incentive to [chuckles] inflate that in the transaction, but you got to be super careful because whenever you propose that your projected EBITDA is going to be quite a bit better than your historical actual EBITDA, then I can promise you the next email you're going to get from the buyer is, "Okay cool, then let's just cast the earn-out on that." You're making the promises that you're going to have to keep, so just don't make promises you can't keep.

Blair: Back to the subject of terms.

David: Right. EBITDA is really important, I think it will always be important, it will always be a part of this, and I'm going to talk later about how do I determine a multiple, where does that information come from, but I really wanted just to give people six things that need to be considered, that EBITDA is not the whole pillar. There are some times when EBITDA can lie to you. What are those six things and how do those impact the whole calculation?

Blair: The first one is what the principle pays themself, correct?

David: Yes. You'd think this would be so obvious, especially for a small closely held corporation. We do this. I don't see many other people adjusting for this, but if you are underpaying yourself against the market, if you're paying yourself less than what a typical principle would, every dollar that you underpay yourself is essentially falsely inflating the net profit. If you're underpaying yourself, then your EBITDA is artificially high, so I need to normalize that. The opposite is also true.

Let's say you are paying yourself a lot more than normal. You should get credit and we should standardize or normalize your EBITDA so that your compensation is normalized. I've got charts for that. Let's say it's a 12-person firm. Then your normalized comp is, I think it's 275. If you're paying yourself 300, I'm going to add the extra 25 to the EBITDA. That's the first place where a pure EBITDA can mislead you because it doesn't, on its own, really reflect how much you're paying yourself on whether we need to make any adjustments.

Blair: Where do these normalized figures come from that are in your chart? Is it safe to assume that as the size of the firm goes up, the owner compensation should go up?

David: It does, it rises up until you hit $410,000. These are all US dollars. Beyond that, the assumption is that the additional money you would make from owning a well-run larger firm is going to come through distributions. It starts at 100, then it goes to 170, and then 210, then 275, and then 410. I developed these years ago and have adjusted them. It wasn't driven by the M&A practice that I do, it was more driven by tax strategies. In certain states, certain areas in the US there's an incentive to pay yourself a little bit because of what it saves on some other taxes and then route it through distributions. I needed a way to normalize that because of how all the different states treat it. I came up with these and I've used them thousands of times. They're very, very reliable.

Blair: The first thing you do when you're looking at EBITDA is you normalize the principle of compensation to adjust for any artificial inflation or deflation of salary and therefore EBITDA.

David: Yes, exactly right.

Blair: What's next?

David: The next one is earnings manipulation. That sounds more evil in the way I just said it, isn't it?

Blair: Right. That's why I wanted you to say it, in your evil voice.

David: I don't mean that in an evil way. I just mean what's been the growth strategy and has that growth strategy or lack of strategy showed up in EBITDA in a way that needs to be normalized. This could go both ways. Let's say that you are really interested in growth and that's most important to you. You might have a lower EBITDA because you are overstaffed or you're spending more than normal on business development, or maybe you've got some expensive software that you need or something.

I need to recognize that and say, "Okay, we've already pre-spent a lot of the money we're going to need to achieve the growth, so I need to account for that," or it could be the opposite. Maybe you're more of a PE-minded firm and you are just looking exclusively for performance and you're cutting quarters everywhere you can. Maybe you're nearshoring labor, or maybe you refuse to have any facility and everybody's remote, maybe your compensation structure.

All of those things need to be taken into account because if you're being very aggressive about growth, it's possible that what you should be spending is not reflected in EBITDA. The first one is principle of compensation. The second one is earnings manipulation. I don't mean it quite that evil sounded. I just mean, we need to understand how this firm got here and therefore what the real EBITDA would be, whether it's higher or lower.

Blair: Just to clarify, this does not equate to cheating on your taxes, this is a business owner making a decision of when to incur expenses and when not to.

David: Exactly.

Blair: Based on a variety of reasons, taxes affecting the EBITDA in a sale, et cetera. I was working in a firm once that was sold and up to the sale for a period of months, it was like, "No, don't spend anything." Even after, during the earn-out, it was like, "No, we're not incurring that expense." You're pushing these problems down the road, but it happens all the time.

David: It does. In fact, I have a little niche practice where I help people exclusively through an earn-out, so they've used a different advisor, and now they're in the earn-out, and they just want to maximize it. I've got, I think it's eight or so principles about how to not cheat, but to actually maximize your earn-out. It's a natural thing to do.

Blair: It's perfectly natural to do that little niche business of yours, and perfectly ethical.

David: [laughs] Were you working there when the firm was bought, and what happened right after? What was it like to be at the firm that was purchased?

Blair: Yes. I left soon after, no connection to the sale, but afterwards, my take was it wasn't a very profitable firm, but the owner/seller was able to very successfully flip the switch and become very profitable, and had a big impact on his earn-out. I didn't know the exact details of the earn-out. I just know, in the end, after three years he made out very well.

David: Yes. A lot of earn-outs nowadays feel more like life sentences for people.

Blair: Yes. I've seen a couple of deals recently where I know the principle who sold, and I look at an earn-out past three years, and I think, "How could you do that? How could you continue to work in the firm you no longer own, and still bring the energy? I assume that part of the reason you sold it was you're losing the energy to work in the business."

David: Bingo.

Blair: Then you sign onto this five-year handcuff. I know at least one of those principles that I'm referencing very excited about the five-year commitment. Maybe it wasn't a lack of energy in that case, maybe it was just selling at a time when the market was really high.

David: Yes. Thank goodness earn-outs are shorter than they used to be. Just like the multiple was always four, the earn-out was always five. I've seen one five-year earn-out in the last probably four years. The rest have all been shorter.

Blair: Do you see any deals or many deals where there's no earn-out at all? It's like the transaction is done, the cash is paid, and the principle moves on fairly quickly. Maybe has a small "consulting" role for a little while.

David: Probably 10 or 15% of the deals I do, there's no earn-out. In fact, I'm just finishing one, where the owner of the firm that's getting bought by a client of mine. I'm not sure how much I can say here, but there's an ethical problem with any earn-out at all, so everything needs to be structured as cash at closing. We need to do a lot more due diligence and so on, so yes, it certainly happens. Where I've seen that happen more than anywhere else, and this is really surprising to me, is when somebody sells their firm to one of their clients. They become the in-house department. Many of those do not have an earn-out structure. There's just money cash at closing, and then an employee agreement that guarantees them a certain amount of years as an employee.

Blair: We're talking about the six main issues that affect EBITDA, and therefore would affect the EBITDA multiple, or maybe would just affect the EBITDA multiple itself. We've talked about principle of compensation, the second one of earnings manipulation. Did we talk about one-time expenses?

David: We haven't yet. We can probably knock that out pretty quickly. The interesting thing here, I'm just smiling, is that when-- I'm on the other side of the table, and somebody is either selling or buying a firm, whatever. When I ask them to classify, "Okay, do you have any one-time expenses in here?" They have this massive list of, "Yes, we'll never do this again. We'll never do this again. We'll never go here for vacation again. We're never going to buy this artwork again."

It's like, wait a second. There's got to be some parameters here. When I say one-time expenses that mess up EBITDA, and these are always expenses, they are not necessarily income. Although on the income side, in the US anyway, the whole PPP loan thing was an issue. That was a one-time income issue. This is a more one-time expense. The one-time expenses that always qualify would be some lawsuit, where you had $1.1 million in fees. These are all real examples for my clients. You moved to a new facility and you signed a 10-year lease.

Well, that's clearly a one-time thing. The distraction and the money you spent out of your cash, as opposed to a loan, that would be a one-time thing. You have to make room for one-time considerations, but you got to be fair about this stuff, because I'll usually disallow about half of what the seller thinks is a one-time expense.

Blair: What's next on the list of things that affect the EBITDA multiplier.

David: This doesn't occur all that often, but I just call it capital investments and debt. An EBITDA multiplier, one of the most important things to realize is this does not take into account anything on your balance sheet.

Blair: Cash in the bank.

David: You could have two firms with very equal profits performance, but a very different balance sheet, and unless you calculate the balance sheet in here, then these firms look like they're worth exactly the same amount of money when clearly that's not the case, because one of them has a much heavier debt burden, or conversely, maybe an investment portfolio on their balance sheet. This just drags us back to the fact that the true value of a firm is a combination of how we analyze the income statement and what's on the balance sheet.

This gets pretty technical, because every purchase is construed as either an asset or a stock purchase. A stock purchase normally comes with a balance sheet, but not necessarily all of the balance sheet. You frequently as a seller would get to take out any excess cash and we need to define what that is. If it's an asset sale, you technically don't get the balance sheet as the buyer, but you will often halfway through the negotiations realize, oh, shoot, in addition to this purchase price, I'm going to have to inject a bunch of working capital in the firm I'm buying.

Even though this is an asset purchase, I'm going to require the seller to include a certain amount of the balance sheet, even though it's an asset sale, so that's where it gets pretty complicated to talk about.

Blair: The working capital for the business would be defined and the buyer would ask for that amount of capital to remain in the business.

David: Usually that's the case, exactly. This is just another example of where an EBITA multiple is not enough, because it doesn't take into account the balance sheet, the capital investments and the debt and so on, so we have to account for that.

Blair: Okay, what's next on our list of things that affect EBITA calculations?

David: The fifth one is growth rate simplification, and this is a little bit of an expansion of something we talked about earlier about reinvestment and so on. This will come into play based on why the buyer is interested in this firm. They might very well be willing to buy the firm at a higher EBITDA multiple than would otherwise be justified because they look at this firm, and they say, "The processes are good, they have a great way to fill the top of the funnel, their quality of earnings is beautiful, because they have monthly recurring revenue under a year long contracts. They built out some service offerings that we really need and want and we can't build them fast enough." They would look at all this and say, "All we need to do is pour more gasoline on this fire, this thing just needs to scale, they have already built it really well."

This would be an example of a case where what might look like a typical EBITDA of four to six might go up to eight or nine because of all of that inherent scaling that's already been built in. This is usually a good argument, but you wouldn't want to sell yourself short by just saying, all right, I'm expecting this kind of a multiple and I can justify that in financial means. No. There'd be buyers who would be willing to do that, but you're looking for a buyer that sees this more as a strategic purchase. It's not justified primarily on financial grounds, which would be an EBITDA argument, but it's justified on other grounds.

Thinking from the buyers perspective, we've got this big firm, we have access to huge clients, we can upsell them on this additional service we're buying with this firm and so we could stray beyond the typical multiple range and pay a lot higher, so this is good news overall, the growth rate simplification thing.

Blair: In some cases, the acquirer would look at the business and they would look at the revenue and the revenue growth and they would say, "We don't even care about EBITDA because we know how to run a business like this. We already have the infrastructure in place, we're just going to add your revenue to our revenue, and we know we can find the profit." Correct me if I'm wrong, but I would imagine in some cases EBITA is just out the window completely. It's like calculating the EBITA of Amazon or Tesla. Maybe those aren't the best examples. You're not buying on a price earnings multiple, just like you're not buying on an EBITDA multiple, you're buying on the potential future profits, and in this case, you're taking on board the responsibility for turning this rapid revenue growth into profit.

David: Exactly right. The assumption behind that, using your two examples, Amazon and Tesla, at some point, Tesla is going to keep gaining market share and will become more and more profitable or you would look at Amazon and say, they're looking for scale and market share right now, but they could press a button and all of a sudden they'd be a whole lot more profitable because they have built into their business models some real growth rate assumptions, some growth rate simplification. Yes, those are good examples.

Blair: Yes. They're reinvesting in other business opportunities and creating businesses within businesses. If you imagine, the comparison would be, imagine Amazon was a privately owned business and Jeff Bezos decided to sell, he would pause the growth machine, possibly flick the switch and say, "Okay, we're going to quit reinvesting. We're going to start taking profits. I want to show a track record of taking profits because I want to sell on the EBITDA multiple." He could do that easily. He wouldn't have to do that because an acquirer would look at it and go, "Yes, it's not profitable on the surface, but I can see they're reinvesting one-time reinvestments" or these other things that we've talked about. They can do the math for themselves, right?

David: Yes, exactly right. Here's where the rub comes in though. You're the seller and you get an offer, the multiple isn't what you want or whatever, maybe the terms aren't great. Then your first inclination is to say, "Listen, we have reinvested all kinds of things. That's why our net profit is 18% instead of 30%." You can go on and on and on. The buyer is going to say, "Maybe, or maybe you're just not very good at running a business." You got to be very specific about this is what we did, this is how it impacted our EBITDA and this is why we've set this firm up to be a great acquisition target. It's not bullshit, but a lot of the arguments I hear are bullshit.

Blair: Yes. I get the sense that these are real negotiations. You're bringing your own valuations to the table and you have to find some common ground.

David: Yes. Exactly right. The final one is just client concentration. It's just an acknowledgment that the all-important EBITDA calculation doesn't take into account this is a part of quality of earnings discussion. It doesn't take into account the fact that a lot of this revenue comes from one client who could go away and so there's some risk there. That's the final qualifier that says EBITDA is really important, but here are six things that you need to take into account that will give you a much better result if you do.

Blair: There really are more than six, aren't there? You've just covered the six main ones.

David: Yes. Just the big ones.

Blair: How many do you think there are? Are they limitless?

David: I'd say there's probably 20. The kinds of things that a M&A advisor would go through. Example of that would be, do we have a non-compete non-solicitation for the key people who are managing the account? There's probably 15 or 20 of those. These are the six most important ones though.

Blair: Is a layer of management that has knowledge and relationships with the clients sticking around? Are they incentivized to stick around?

David: Yes, exactly.

Blair: Okay. You said four to six, these are market historicals. You said it changes over time. Where did the multiples come from?

David: From a bunch of places. Because I do a lot of this, I'm hearing these, I'm seeing the offers all the time. I probably see about 50 or 55 offers a year. It also comes from my competitors who are actually friends and really good at what they do. We network quite a bit just to compare what we are hearing in the marketplace. All that's a little bit analogish, but the most digital place where this comes from is something that used to be called Pratt's Stats. Now it's BVR. They bought them. This is a massive database of all kinds of elements.

It looks at about, I think, 18 or so different factors for every completed deal, both public and private that they can get their hands on. I'm selling a podcast firm right now and I could go in there and say, "All right, pull up this NAICS code," which is the new version of SIC. "Pull up this NAICS code, what do the completed deals look like? What are the terms? What's the multiple, what's sort of cash came with it." It's a very expensive database that I subscribe to, but that's the most scientific part of it. It's the part that's the most difficult to argue with for somebody.

Blair: Okay. It does get quite technical. You're referencing lots of factors in the marketplace. What other factors you want to cover up before I ask you a final question.

David: Is that final question going to scare me or--

Blair: No.

David: I'll be okay. Okay, good. That's like, oh, gosh, now I'm nervous. Now, the other factors would be things like- this is probably the biggest one. The first I want to mention is just what period of time are we looking at? Are we looking at a projection which is pretty nerve-wracking to a buyer? Sometimes it happens or are we looking at an average of the last three years or is it a weighted average of the last three years or just the last year or just the last 12 months? That's one.

Other factors, and we've talked about some of these, would be the principle of compensation normalization. That's a really important part of it, especially for a smaller firm. It's not that important for a bigger firm, because whatever the principle's paying himself or herself is a pretty small portion of the firm's performance. It becomes more important with a smaller firm, then we're looking at dissolution or book value.

You don't just take the balance sheet and just accept everything that's on there because a lot of things have to be on a balance sheet for tax purposes, but actually have no value in a sale. Things like leasehold improvements, for instance, and then other things need to be reversed like loan to shareholders and so on. Then there's lots of other factors that I think about and most of them don't come into play most of the time, but client concentration would be an example where it might be built into the price, or it might be built into the terms.

I usually try to build it into the terms. I guess what I'm saying is when you call me up and say, "What's the typical multiple these days?" I can answer that question, but it's almost the wrong question because it's way more complicated than that. EBITDA multiple will always be important, but it's not the end all be all. There are other elements to it and it's important to understand what those are. I'm done. What's your big question.

David: That's a nice wrap-up. I just wondered if there's a time when a firm owner would make sense to do a valuation other than when they're considering selling.

Blair: Yes, for sure. Like when they're getting divorced, that's a big one.

Blair: Yes. Right.

David: Or they're buying out a partner or they're adding another partner.

Blair: Yes. The reason I ask is I'm sure there are listeners to this podcast who are thinking, "Okay, well, this is interesting for if I want to try to sell the firm one day. I don't foresee myself selling over the next few years, but I'm really curious what the business is worth." Do people hire you to do valuations when they're really at that stage? They're just curious.

Blair: Yes, probably a third of the ones that I would do, I would guess, and I probably do about 40 a year. Maybe a third of those. It's usually a principle who's pretty good at running the business and they're not ready to make a change right now, but they want to run the business as if they're going to sell it so that if they do, they get more for it, and if they don't, it's a much more fun business to run.

They do this, and the way I do the valuations is they don't need to ever hire me again to do one, unless the multiple changes, but the way the formats are built, they can just plug in new numbers and it comes to the surface. People want to know the value of what they built. That makes perfect sense to me, but there's science and there's art in this, and the science, people think the science is, "Okay, what's the multiple? It's like, no, that's important, but there's also a lot of art. There's a lot of things that impact it too. I really love valuation work. It's a combination of math and all the soft stuff too, which I enjoy.

Blair: It sounds like you've built software or maybe just a spreadsheet that lets you punch in all the variables and then you do a calculation. That's the science part. Is that correct?

David: Yes, that's right. We give that to the client.

Blair: Then the art is bringing your experience and intuition and saying, "Yes, this is a little high, I think we should ratchet that down," or you use it to construct terms in a deal. Where does the art come in?

David: The art comes in in knowing what to discount and what to wait more heavily. Then also, as a part of every valuation, I'll say, "Okay, I'm 95% sure that you could sell this firm for X amount with these terms, and if you wanted more money or better terms, these specifically, for instance, and I'm about 80% sure that we could market that firm for that." As part of the valuation process, I feel like it's important to not just give them a price, but also give them a terms expectation as well.

Blair: Wow. This has been really interesting to me. We've known each other for years. We know each other's business as well, but there's certain areas where our services and the areas that we work on with our clients tend to overlap or are adjacent to each other, and this isn't one of them. This has been really enlightening to me. Thank you for this, David.

David: Yes, this has been fun. Thanks, Blair.