Ep. 426 — Jeff Buettner: How the Buyer's Math Decides What You Actually Get Paid

6 min read

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Episode Summary

You built the company. You hit your number. You walk into the M&A conversation thinking the multiple is the multiple and the check is the check. Then you find out the buyer has their own math, their own cost of capital, their own pension fund breathing down their neck, and that math decides how much you get upfront, how much sits in an earn-out, and how much rolls into equity you may never see. I brought Jeff Buettner from ButcherJoseph back on to walk through the part most owners never see: what the buyer is actually solving for. We got into the different buyer universes (strategic, PE platform, PE bolt-on, family office, ESOP, management buyout), why a normalized EBITDA number times “the multiple” is only the opening sentence of the conversation, and how a PE firm’s required IRR forces specific operational decisions on your company the day after close. We dug into why the same $50K/month in distributions you take today gets converted into principal and interest payments tomorrow, why the ESOP 1042 structure can quietly net more over five to seven years than a higher headline strategic price, and why “above-average performing businesses trade at premiums” is not a slogan — it’s the only door that opens the full buyer universe. Real example: a $50M sale that turned into a panic-attack-on-the-plane disaster because nobody pressure-tested the buyer’s integration assumptions before close.

Top 10 Takeaways

  1. The multiple is the inversion of the buyer’s weighted average cost of capital, not a number pulled from the air.
  2. Every buyer category (strategic, PE, family office, ESOP, MBO) has a different cost of capital and a different required return, so every offer means something different.
  3. Your distributions today become someone else’s principal and interest payments tomorrow. That’s the buyer’s underwriting math in one sentence.
  4. PE doesn’t lower its target IRR when debt gets expensive. Something else has to give: revenue, headcount, R&D, or capex.
  5. Ask what assumptions the buyer placed on your business. If they’re fantasy, your earn-out is worthless before the deal closes.
  6. A platform deal and a bolt-on deal are priced and integrated differently, and you need to know which one you are.
  7. The ESOP 1042 election can produce more net after-tax proceeds over five to seven years than a higher headline strategic price.
  8. Above-average performing businesses trade at premiums because supply is thin and buyers trip over themselves to win them.
  9. If you can’t get most of the cash at close, you’ve signed up to share execution risk with someone who’s never run your company.
  10. All roads lead to the same work: build sustainable free cash flow now, or get paid less for it later.

Sound Bites

“100% of the companies on the planet that I’ve ever met are underpriced. Meaning in some corner of the business, there’s something you could charge more for.” (@TBD) — Jeff Buettner

“Private equity is not going to want to underwrite to a lower return. They’ve got to keep their same return. So some other lever in the equation has to change. If they want an 18% rate of return, it doesn’t matter. They want an 18% rate of return. That means something else has to change.” (@TBD) — Jeff Buettner

“If the assumptions are so grandiose and unlikely to be achieved, then you’re really not going to see any sort of secondary benefit at some point in time in the future.” (@TBD) — Jeff Buettner

“The biggest misunderstanding founder owners have is they tend to think that all buyers are equal and all transactions are equal. That’s not necessarily the case.” (@TBD) — Jeff Buettner

“All roads lead to creating more sustainable free cash flow. Because if you don’t, you’re going to get dinged on the valuation and the cash at closing. It’s going to come back to you at that monetization event.” (@TBD) — Ryan Tansom

About This Episode

Jeff Buettner is a Managing Director at ButcherJoseph & Co., the St. Louis-based investment bank known for its depth in ESOP transactions alongside a full M&A practice covering strategic sales, private equity, family office, and management buyout transactions. Jeff runs deals across all of those buyer categories, which makes him one of the few people Ryan trusts to talk honestly about how each buyer’s math actually works, not just the door they’re trying to sell. ButcherJoseph’s feasibility analysis (mentioned throughout this episode) is the tool Ryan keeps pointing his own clients toward when they need to see what different doors actually pay them on a net after-tax basis over time. This is Jeff’s recurring slot on the show, sitting alongside the quarterly macro updates with the ITR Economics team.

Resources Mentioned

  • ButcherJoseph & Co. — Jeff’s firm. M&A advisory across strategic, PE, ESOP, and MBO transactions. Feasibility analysis referenced throughout. — butcherjoseph.com
  • IRC Section 1042 — The C-Corp ESOP tax provision that defers capital gains on qualified sales to an ESOP.
  • ITR Economics — Referenced as the macro update partner; quarterly conversations referenced throughout.

Connections

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