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Episode Summary
You think you know what your business is worth. You’ve got a number floating in your head, and it’s either close to right or way off, and you won’t know which until you actually sit down with someone who reverses back from a real buyer’s return-on-equity math. I had John Carvalho on, co-founder of Divestopedia and founder of Stone Oak Capital, and we got into the gap between the valuation number and the check that actually lands in your bank account. We covered why your most likely buyer is almost never the dream multinational, why the leveraged-buyout reverse is the only valuation method that actually predicts deal structure, why the owner doesn’t care about valuation (you care about net-of-tax proceeds, over what timeframe, at what risk), and the Milestone 6 — Transaction Value John is running with a current client where the worst-case outcome is a business that’s a hundred times healthier than the day they started.
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## Top 10 Takeaways- Most owners’ valuation guess is either way off or accidentally close, and they don’t know which until they ask.
- Start three years out. Time is the only lever that lets you fix the number, the buyer, or both.
- Your dream multinational buyer almost never shows up. Plan for the most likely buyer, not the fantasy one.
- Match your objectives to your exit option. If they conflict, change one or the other. There is no third path.
- Valuation is not a number. It’s a deal structure backed into from a likely buyer’s required return on equity.
- You don’t care about valuation. You care about net proceeds after tax, over what timeframe, at what risk.
- A traditional valuation gives you a number. A reverse buyout shows you the cash, the earn-out, and the risk.
- Almost no owner calculates return on equity on the whole business. Until you do, you don’t see it as an asset.
- Build your exit around the date the market peaks for your industry, then work backwards from there.
- Worst case, the deal doesn’t happen. You still own a business that is a hundred times healthier.
Sound Bites
“I’m not in the business of telling people what they want to hear. I’m in the business of being realistic on what exit options are and what valuations are.” (@TBD) — John Carvalho
“The owner doesn’t care about valuation. They care about exactly what you said, how much money is in their pocket after they sell their business.” (@TBD) — John Carvalho
“At the end of the 1,000 days, if it doesn’t happen, this business and this client that I’m working with is 100 times better business than it would have been otherwise.” (@TBD) — John Carvalho
“What’s the worst-case scenario? Your EBITDA is 10 times more than it was before?” (@TBD) — Ryan Tansom
About This Episode
John Carvalho is the founder of Stone Oak Capital, a Canadian M&A investment banking firm focused on middle-market sell-side advisory, and co-founder of Divestopedia, the educational platform for owners navigating exit, valuation, and value-building. John started as a CPA, spent eight years in the corporate finance group at a Big Four firm, and built Divestopedia with Cory Janssen, the founder of Investopedia, after realizing how little high-quality public information existed for owners on this topic. This was one of Ryan’s early Life After Business conversations and seeded the partnership that brought the podcast onto the Divestopedia platform.
Resources Mentioned
- Stone Oak Capital — John’s M&A investment banking firm.
- Divestopedia — Educational platform for owners on valuation, value-building, and selling a business. — divestopedia.com
- Investopedia — Cory Janssen’s company, referenced as the inspiration and partnership origin for Divestopedia.
- Rob Slee — Referenced for the stat that ~90% of middle-market businesses don’t earn enough return on equity to compensate the risk owners are taking.
- John Warrillow — Referenced for the value-building system framework Ryan’s firm uses.
- Richard Wilson — Family Office Club — Referenced briefly as a source on family office buyers.
Connections
Phase + Module:
- Module 2 — Expand Knowledge — Foundational knowledge for any owner thinking about exit, valuation, and what a real deal looks like
Milestones:
- Milestone 6 — Transaction Value — The reverse-buyout math that predicts deal structure, not just a headline number
Concepts referenced:
- Enterprise Value vs. Equity Value — The gap between the valuation number and what the seller actually nets
- The Multiple & WACC — The buyer’s required return is the input that determines the multiple
- Normalized EBITDA — The cash-flow proxy the buyer uses to back into their return on equity
- Three Lenses of Value — Different buyers, different lenses, different numbers
- Value Gap — The space between an owner’s expectation and a realistic deal structure