Fact
Incentive-caused bias: share buybacks line the CEO's own jeans
Wilkinson explains incentive-caused bias using buybacks: CEOs paid in stock options benefit when share price rises, and buybacks shrink the share count to lift price — so a 'return capital to shareholders' move can really be self-enrichment.
“a lot of CEOs are compensated based on share price because they get stock options. So their stock options become more valuable when the share price goes up. And what makes the share price go up but share buybacks? So when you buy back shares, there's fewer shares and each individual share is worth more. So it's actually a way for the CEO to put money in his or her own jeans.”
Framework
Buy like a family: no debt, no intention to sell
Permanent Equity's model is the opposite of standard PE: instead of a 4-7 year hold with maximum leverage, they buy with no intention of selling and typically use no debt, so the businesses can absorb shock.
“We've just really taken the opposite approach and said, "We wanna own businesses like a family would." So we buy with no intention of selling the business, and we're typically using no debt as part of our transactions, which in the private equity world means that we're the weirdest duck in the world.”
Steal thisBuy cash-flow businesses with no debt and no exit timeline so a downturn can't force-sell you.
Number
Permanent Equity pays 3.5-5.5x owner earnings
Beshore's typical purchase multiple is 3.5 to 5.5 times owner earnings, with only 2 to 3.5x paid in cash at close and the rest held back, earned out, or downside-protected. Their strike zone is $3-8M of owner earnings.
$5.5
Acquisition multiple on owner earnings · x owner earnings
“Yeah, I would say kind of 3.5 to 5.5 would kind of be the normal range. I mean, maybe we'd go higher for a really high-quality asset, but I would say that's a pretty normal range in our segment, which is, you know, kind of our strike zone is $3 to $8 million of owner earnings.”
Number
700-person scout network feeds all-inbound deal flow
Permanent Equity sources deals entirely inbound, partly through a scout network of about 700 people who get paid when a transaction closes, a model common in Silicon Valley but rare in private equity.
$700
Size of deal-sourcing scout network · scouts
“we have a scout network, which is common in Silicon Valley, uh, but very uncommon in, in private equity. Um, so we have about 700 people now that, uh, that scout opportunities for us, um, which is fantastic. Um, and we obviously pay them, um, when, when we are able to consummate the transaction.”
Number
90% of businesses hit, only 5% with a tailwind
From the businesses Permanent Equity interacts with, Beshore estimates roughly 90% were adversely affected by the early-COVID shutdown, about 5% unaffected, and only about 5% getting some weird tailwind.
$90
Share of businesses adversely affected by early COVID shutdown · percent
“I would say 90% of businesses have been adversely affected. 5% are probably unaffected, and then maybe 5% have some sort of tailwind that's weird because of this. But 90% are just— it is suffering. I mean, it is unbelievable what's happening right now.”