$CBZ: stop the buybacks and restart the M&A flywheel? | Reference Equity

Summary

• Ryan Bunn of Reference Equity is publicly urging CBIZ ($CBZ) to stop its buybacks, reduce leverage, and restart the small-deal M&A flywheel that historically compounded the business. He has followed CBIZ for nearly eight years, and points to its professional-services offering, 9,500 employees, 130,000-plus clients, and #7 position among tier-two firms. CBIZ completed 79 smaller deals over 20 years, generally at 6–9x EBITDA.
• Bunn’s core math: buybacks at 9x earnings can produce roughly an 11% return, but the company is splitting cash between repurchases and 6.5% debt paydown, yielding roughly 8% before growth — “the market’s not excited.” He says purchases at 6–7x earnings were accretive, but aggregate recent buybacks were not particularly accretive at today’s price. His rule is that buybacks above 10x free cash flow are no better than, or worse than, M&A.
• His five-year fork: continued buybacks could retire about 50% of the shares but leave a $2 billion, 3.5x-levered business growing EBITDA 5% a year; the M&A path could double EBITDA, delever, and re-rate to 15–16x for “well over 100% upside.” He views the roughly 2-point return difference between the alternatives as less important than the potential effects on growth, leverage, and the multiple.
• On AI, Bunn gives an honest non-answer — “I’m in Denver, Colorado. I’m not in Silicon Valley. I’m not going to give you an AI answer” — but leans on regulation and customer connection. Businesses cannot audit themselves, and CBIZ’s smaller middle-market clients are unlikely to automate all their back-office processes by downloading something from GitHub. If AI reduces prices, he thinks it may hurt the Big Four first because their brand-driven profit pool makes them reluctant to cut prices down-market.
• Andrew Walker’s sharpest pushback: the market did not seem concerned about CBIZ’s leverage when the stock was $70–80 with more debt, so the drawdown may be AI fear rather than a distress multiple that deleveraging will fix. Bunn’s rebuttal is that the market previously expected management to delever and resume M&A; the misstep was spending $160 million on 2025 buybacks instead. He says the CEO has indicated there will be no M&A in 2026, with about $325 million of debt to pay down over 18 months.
• On the Marcum deal, which Walker described as possibly the largest accounting deal ever, Bunn will not say whether he would redo it — “that’s an interesting question, and I don’t know” — but argues the strategic rationale was sound and the financing was the problem. The $2.3 billion deal added a New York presence, digital-assets capabilities, and the #7 position, but CBIZ took on too much debt despite issuing about 13 million shares when the stock was above $65.
• Walker strongly challenged the proposal to raise equity now, citing discounted financings such as Wix and asking for an example of long-term investors paying up to delever. Bunn cites FMC, where a European private-equity firm bought a large stake at a premium to pay down debt, and says he would nearly pay $40 per share if the money went onto CBIZ’s balance sheet. He ultimately makes the proposal financing-agnostic: stop the muddled capital allocation policy, reduce leverage, return to M&A, and grow earnings per share.

Deep dive

1. The setup: an experienced CBIZ follower wants to restart the flywheel

• Bunn first met CBIZ’s CEO in 2019 and says he has followed the company for nearly eight years. CBIZ provides tax, audit, accounting, payroll, and benefits services to middle-market customers. It operates from 23 major U.S. metros, has 9,500 employees and more than 130,000 clients, and ranks #7 in an industry where the Big Four occupy the top tier and firms ranked 5–20 are considered tier two.
• His public proposal is for CBIZ to stop its current buybacks, reduce leverage, and return to the small-deal M&A strategy that historically built the company. CBIZ completed 79 deals over 20 years, generally at 6–9x EBITDA. Bunn argues that its culture, talent base, and broad service offering helped make it an attractive acquirer and allowed it to compound capital.
• His concern is that CBIZ is now about 3.5x levered while buying back stock at roughly 9x earnings or free cash flow. He sees those buybacks as mathematically attractive at the current price, but less attractive than returning to M&A once the stock trades at a double-digit multiple.

2. Walker’s buyback instinct versus Bunn’s price discipline

• Walker’s first pushback is that management itself has done extensive M&A and says the stock is the best use of capital. Since management benefits from company growth, Walker asks whether that conviction should be trusted.
• Bunn answers that the relevant question is when the buybacks were accretive. He says CBIZ bought shares at $72, $67, and $52 in 2025, while purchases during a period from February through June were made at six to seven times earnings and were accretive. In aggregate, however, he says the last 18 months of repurchases were not particularly accretive based on the current share price.
• His comparison is with CBIZ’s historical M&A returns: roughly 9% unlevered over ten years, which can become double-digit with about one turn of leverage. His rule is that a buyback above 10x free cash flow is either a tie or less accretive than M&A. Buybacks are mathematically more compelling if the shares remain at seven to nine times free cash flow, but not once the multiple reaches double digits.

3. AI risk: an explicit uncertainty and two defenses

• Walker flags accounting and audit as being in the AI crosshairs. CBIZ’s stated shift from 6% offshore last year to 10% by year-end and potentially 20% within a few years makes him worry that the business is vulnerable to automation. He also suspects that some of the decline from an earlier 18x multiple reflects AI fear, not only disappointment with Marcum.
• Bunn says AI is absolutely a risk: “I’m in Denver, Colorado. I’m not in Silicon Valley. I’m not going to give you an AI answer. I don’t know where this is going to go.” He does not want a highly leveraged balance sheet while facing an existential uncertainty.
• His two defenses are regulation and customer connection. Businesses cannot audit themselves, and middle-market CFOs want a trusted adviser for essential, regulated services. CBIZ’s smaller clients are also unlikely to automate every back-office process by downloading something from GitHub.
• Bunn’s counter-position is that firms already working with clients every day may be best positioned to implement AI workflows. CBIZ could initially capture some margin from AI and later help its clients adopt the technology.
• Walker asks why KPMG or Deloitte could not use the same efficiency to move down-market into CBIZ’s customer base. Bunn sees that as a source of industry consolidation, but argues the Big Four are different: their brands let them charge a premium, and they may be reluctant to cut prices to pursue middle-market work. He thinks AI-driven price reductions could hurt the Big Four first.

4. The talent-walks-out-the-door risk

• Walker’s second AI concern is that automation could make it easier for a star accountant to leave a firm, take clients, and operate independently. The support and back-office infrastructure that once required a larger firm could become easier to reproduce. He also suggests that producer economics help explain why the Big Four have remained partnerships rather than financial-owner businesses.
• Bunn says CBIZ has dealt with this people-business risk for more than 20 years. His defense is the breadth of the platform: a client can use CBIZ for tax and accounting, then call on it when opening a facility in Mexico, pursuing an acquisition, or dealing with digital assets.
• Those capabilities include customs and other international support, valuation and due diligence, and the digital-assets practice acquired with Marcum. Bunn argues that an individual accountant cannot provide this full suite, making the relationship more institutional over time and less dependent on one producer.
• He also points to CBIZ’s culture and its historical practice of paying about 75% of revenue as compensation. In his view, CBIZ can be an appealing destination for someone burned out at the Big Four who wants to serve clients, have a family, and work with a broad platform.

5. Marcum: strategic rationale, financing problem

• Walker asks whether management would take a mulligan on the roughly $2.3 billion Marcum deal. He describes it as possibly the largest accounting deal ever, while acknowledging that he relied on AI in preparing for the discussion, and notes that the stock has fallen substantially since the transaction.
• Bunn says he does not know whether he would redo the deal and does not think it is necessary to relitigate a transaction that already happened. Strategically, he sees major benefits: Marcum added a New York City presence, scale, talent, digital-assets and cryptocurrency capabilities, and a number of services that could be cross-sold nationally. It also moved CBIZ to #7, which he prefers to being #12 or #18.
• He believes the financing was the larger problem. CBIZ issued about 13 million shares when the stock was above $65 but still took on too much debt for the size of the business. Bunn says more stock at the time, or using subsequent cash flow to pay down debt instead of buying shares, would have left the company in a better position.
• Walker challenges the idea of reloading the M&A gun: Marcum was supposed to fill strategic gaps and provide scale, yet the integration brought more client and employee attrition than expected. Bunn responds that he is not advocating another large “elephant” deal. He wants CBIZ to return to the many smaller transactions it completed historically, which he considers easier to integrate and immediately cross-sellable.

6. Crowded auction or acquirer of choice?

• Walker worries that the market for small accounting firms has become crowded. Many mid-tier firms are private-equity-backed and actively rolling up targets, so a seller may attract several bidders and create winner’s-curse risk.
• Bunn says CBIZ’s differentiator is its culture and its status as an acquirer of choice. It can offer cash, stock, earn-outs, and continuity for employees, rather than simply adding scale and selling the business to another private-equity owner. That matters to founders who do not want to put their employees’ careers at risk.
• He concedes that CBIZ has jeopardized this position through high leverage and a falling share price: receiving CBIZ stock is less attractive if the shares could fall sharply.
• Bunn believes the next three years could provide an unusually large opportunity. Founders are retiring, smaller firms may be disadvantaged by AI, and higher interest rates make private-equity financing more difficult. PE-backed players could eventually sell under pressure, while an equity-funded acquirer would face different financing math. CBIZ, however, is currently too fragile to exploit that dislocation.

7. Two capital-allocation paths and the leverage debate

• Walker lays out the management case: buy back roughly 11% of the shares annually at 9x earnings, add about 5% organic growth, and potentially benefit from multiple expansion if the market decides CBIZ is not AI roadkill.
• Bunn says that is close to his base case, but CBIZ is also paying down debt. Because the debt costs about 6.5%, the combination of repurchases and debt reduction produces roughly an 8% return rather than an 11% buyback return. Adding 5% growth and any multiple expansion gets to roughly 13% or more.
• Bunn’s alternative is to use the capital for M&A at about a 9% unlevered return. He acknowledges that this is initially less accretive than an 11% buyback, but says the roughly 2-point difference is small over two years. Acquisitions would add EBITDA, accelerate deleveraging, expand the service offering, and make the business grow faster than its current roughly 5% pace.
• His five-year comparison is stark. If CBIZ continues buying shares at 9x free cash flow, it could repurchase about half the company and double earnings per share, but shareholders would still own a roughly $2 billion market-cap business with 3.5x leverage and 5% EBITDA growth. If it returns to M&A, Bunn envisions doubled EBITDA, complete deleveraging, double-digit EBITDA growth, a stronger competitive position, and a return to a 15–16x earnings multiple, implying well over 100% upside.
• Walker challenges two assumptions. First, if CBIZ issues shares at 9x free cash flow to buy businesses at the same multiple, EBITDA growth is not the same as EBITDA or free cash flow growth per share. Second, he doubts that deleveraging alone will produce multiple expansion: the stock traded at $70–80 with more leverage a year earlier, so AI fear may matter more than credit risk.
• Bunn points to the stock having traded at six times earnings three months earlier and argues that the market prices credit risk even though it is difficult to quantify. His example is asymmetric: if rates returned to roughly 10% as in the 1980s, a business at 3.5x leverage could be wiped out, while a business at one turn of leverage could remain fine.
• He attributes the sell-off partly to a capital-allocation misstep. At the time of the Marcum deal, investors expected rapid deleveraging followed by resumed M&A and double-digit growth. Instead, CBIZ spent about $160 million on 2025 buybacks. Bunn says the CEO has indicated that there will be no M&A in 2026, possibly a return in 2027, and that roughly $325 million of debt must be repaid over the next 18 months. With 60–70% of free cash flow going toward debt at 6.5%, he says the market is not excited, even though he values the risk reduction.

8. Management, board, and the equity-raise proposal

• Bunn supports the management team, especially Jerry Grisko. He says the business was private-equity-backed in the late 1990s, completed about 150 acquisitions, and then struggled during the tech bubble. Grisko joined around 2003 or 2004 and has been with CBIZ for more than 20 years, building the culture that Bunn believes supports talent retention and integration.
• Bunn’s broader point is that capital allocation is more difficult in practice than it appears on podcasts. He argues that most businesses allocate capital poorly, citing return on equity for the indexes being below 10%, and wants this team to return to its historical strengths.
• Walker is more concerned about the board: he describes an eight-member staggered board, estimates about 4% insider ownership, and says the youngest director is 61, with six of eight at or above retirement age. He questions whether a long-tenured, lightly owned board can guide a people-heavy business through rapid technological change or whether it risks becoming a semi-retirement arrangement.
• Bunn concedes the point rather than defending the board. He says the business is Cleveland-based and the directors presumably know one another well, but that the capital-allocation discussion he and Walker had may have been more extensive than the discussion at the management and board level.
• Walker’s final challenge is Bunn’s proposal to issue equity now. He argues that an offering brings banker fees and a discount, citing discounted financings by busted biotechs and Wix’s placement involving Durable Capital, which he remembers as being at $75 with a warrant when Wix traded around $90.
• Bunn says this would not be a distressed equity sale. He imagines management speaking directly with high-quality, long-term investors who might provide primary capital without a major discount, because the proceeds would reduce leverage and make CBIZ more investable. He says he would nearly pay $40 per share if the money went onto the company’s balance sheet.
• He cites FMC as a recent example in which a European private-equity firm bought a large stake at a premium and used the capital simply to pay down debt. Bunn’s proposal does not require CBIZ to raise equity immediately or hold idle cash; the financing could be coordinated with the M&A pipeline.
• His more important request is financing-agnostic: stop the “very muddled capital allocation policy,” reduce leverage, return to M&A, grow earnings and earnings per share, and restore a normal trading multiple. The company can choose where it falls on the spectrum between equity, debt reduction, and transaction-based stock issuance.