Summary

In this conversation, Pardis Nasseri shares his journey from public accounting to becoming a successful entrepreneur in the M&A space. He discusses his experiences at Price Waterhouse Coopers and Platinum Equity, leading to the founding of Palm Tree LLC. The discussion covers the evolution of private equity, the impact of AI on due diligence, and the importance of ESG in investment banking. Pardis emphasizes the need for adaptability in the face of geopolitical changes and the future of investment strategies. In this conversation, Pardis Nasseri discusses various aspects of investment banking, focusing on the importance of quality of earnings reports, the role of referrals in business development, and the critical nature of cultural integration in acquisitions. He emphasizes that successful acquisitions depend on aligning company cultures and maintaining discipline throughout the due diligence process. The discussion also touches on the significance of understanding financial projections and the strategic versus financial acquisition landscape.

Takeaways

Pardis transitioned from public accounting to M&A to become an investor.
His experience at Platinum Equity shaped his entrepreneurial journey.
Palm Tree LLC was founded to provide unique M&A services.
AI is set to revolutionize due diligence processes.
Understanding the fundamentals of business is crucial in M&A.
Geopolitical factors are influencing investment strategies today.
ESG considerations are becoming essential in investment banking.
The private equity landscape has evolved significantly over the years.
The importance of adapting to market changes cannot be overstated.
Investors must consider how technology will disrupt traditional business models. M&A transactions are akin to brain surgery, requiring careful consideration.
Referrals are the primary source of business development in investment banking.
Quality of earnings reports help normalize a company's financial performance.
Past performance is a reliable indicator of future potential.
Cultural fit is crucial for successful acquisitions.
Compensation structures can significantly influence company culture.
Discipline in the due diligence process is essential for successful transactions.
Investment banking services can be tailored to client needs.
Strategic acquisitions often involve more emotional decision-making than financial ones.
A strong leadership team is vital for managing complex transactions.

 

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Transcript:

JON STODDARD (00:02.817)
Three, two, one. Welcome to the top M&A entrepreneurs today. My guest is Pardis Nasri from Palm Tree LLC. Pardis has done successfully over $30 billion in transactions. Welcome to the show, Pardis. Yeah, thanks for doing this, guys. We've rescheduled a couple of times. So I got to ask you a question.

Pardis Nasseri (00:20.182)
Thank you, it's a pleasure to be here.

JON STODDARD (00:29.189)
I was just reading an LA Times article that you actually started as an independent sponsor. So and it's evolved into something else. So tell me, let's go back a little bit first, back to Price Waterhouse, Coopers, and then that story there. And then we'll go to Platinum Equity and then Palm Tree.

Pardis Nasseri (00:47.318)
Absolutely, absolutely. So I, you know.

family immigrated here. Most of my family are not business people. They're doctors and lawyers and engineers. So I had no idea that there was this whole field of investments and M&A and private equity. And so I started in public accounting and public accounting was great, but it wasn't my calling. And I transitioned over to the transaction services group within PWC, which is the first time I actually learned about mergers and acquisitions and buying and selling companies.

and really enjoyed doing that work. But I wanted to get away from being an advisor to actually being an investor and doing the work myself.

JON STODDARD (01:37.097)
Time out, I lost your volume.

Pardis Nasseri (01:41.182)
Is this, is it back on? Okay. So, you know, I started working as an advisor at PWC and I really liked that, but I wanted to leave the advisory world and go into the buy side. But prior to doing that, it was kind of hard to go for a public accounting straight into private equity. Managed to find a way to go to Jeffries without getting an MBA and got, got into Jeffries and it was pretty impressive how I pulled that off.

JON STODDARD (01:42.933)
Yes. Yeah.

Pardis Nasseri (02:06.506)
But I really enjoyed my time when I was at Jeffreys working there, living in New York. And sometimes in life, it's better to be lucky than smart. And it was right around May of 2008 that right before the world melted and everything collapsed, is that I found that I got an offer to come to LA and work at Platinum Equity. So less than one year at Jeffreys, I left Jeffreys and came to Platinum. And you know,

was in the best place I could be at the time of the global meltdown with a private equity firm that had just raised their second fund shy of $3 billion. And I was going out on a buying spree with my clients or with my employer at the time. And I learned so much during that time. And after a few years, I ultimately decided that for me, you know, the entrepreneurial journey is more of where it's at. And I wanted to leave.

But I still wanted to be involved around the world of M&A because I thought it's fantastic. It's high-powered It's full speed ahead and it's a lot of excitement. So I left platinum and started my own company Which is was basically providing a lot of the same things I did while I was a platinum as a service to platinum as well as other private equity firms and That's sort of how the story of the genesis of palm tree and it's evolved a lot from there. But the

The one thing going back to the independent sponsor, you know, we had a two-pronged strategy at that first early days when I left Platinum. One part was doing the advisory work and the consulting work. And then the other side was to actually make investments and do our own investments and buy companies and build platforms. And I had a partner and we did that for about five, six years. We had, you know, some success, but ultimately I decided that I really want to focus on being an entrepreneur and...

investing in a different way instead of buying other companies really investing in building my own company and looking at bringing in talented people to work with me so we could create a unique organization that didn't really exist prior to us creating

JON STODDARD (04:10.481)
Yeah, I got to go back to the immigration. Where did you immigrate from?

Pardis Nasseri (04:15.145)
from Iran.

JON STODDARD (04:17.021)
Iran, interesting. Okay. It was at the transition to the to the Molas, right in that area at that time.

Pardis Nasseri (04:25.802)
Well, no, unfortunately not, because I was actually born in the US in 1977. And everybody knows how old I am, but all you listeners know how old I am. But I was born in 1977. My father was finishing his last degree in Chicago. And then we moved back to Iran thinking, you know, nothing was wrong. And then the revolution, we actually got stuck there. And I had to live there with the Moll laws and ended up in 1988 is when my parents escaped. My mom and I went through a different country. My dad went through another country.

and we ended up here. So I did live in Iran during that time where, you know, it was pretty unsettling to be living there. And I think that shaped a lot of my resolve that I have, but that's sort of the story of kind of how it all started.

JON STODDARD (05:12.613)
Yeah, I just, the reason I bring this up is I see people that are immigrants, they do so well because they, most people in the United States take citizenship in the United States for granted. There's so many opportunities compared to other countries and the rules that they have to live on.

Pardis Nasseri (05:13.654)
Hmm

Pardis Nasseri (05:31.498)
No, you're absolutely right. And I'm very proud of being an American citizen. I love the Fourth of July, and I'm very patriotic because I think there's no other country that can give, and I'm not the only one, there's many people like me, that you just show up here from another country and you get into the system and you're able to be successful.

JON STODDARD (05:52.341)
Yeah, I love that story. It's a fantastic story. So let's go back to your work at this private equity, platinum equity. You started buying these companies over, or let's say your evolution in buying the companies. You had money, you raised capital, you bought these companies and what was happening? Was it, it wasn't creating the arbitration valuation that you were looking for? Or was it just personal?

Pardis Nasseri (05:56.064)
Thank you.

JON STODDARD (06:20.925)
you know, it's not something you like to do.

Pardis Nasseri (06:23.722)
You mean like the reason why I left platinum or the reason why platinum or like the strategy that platinum was.

JON STODDARD (06:31.121)
Yeah, the strategy with the platinum was doing. Yeah.

Pardis Nasseri (06:33.43)
So, Platinum Strategy was basically, they were one of the premier operationally focused private equity firms. They were the first ones to come out and ever since then, there's a lot of other firms that say they're operationally focused. But if you think about the history of private equity, the history of private equity, private equity before was private equity, it was merchant banking. Merchant banking was investment bankers saying, hey, we're raising debt for these healthy businesses.

Why don't we raise some money that we can put into work ourselves that will work effectively as an interesting way for us to create capital, right? Because you buy, if all else equal, you buy a company with some equity and debt and then you operate it for a few years, you pay down the debt and then you sell it. Even if the valuation doesn't increase, you've made a return on your equity because you've paid down the debt. Now,

That's how private equity sort of started. And then it came the idea of junk bonds or high yield bonds and Mike Malkin and Drexel Burnham at Lambert in LA that was fueling a lot of this M&A transactions. Now the space got a little crowded and as it started getting crowded, firms were looking at different ways that could differentiate and create value. So some were focusing on certain industries or some were focusing on, you know, like

type of transaction and then incomes platinum who says you know what when you look at making money on a company you have to look at it as an actual operation and you go in and you tackle it you know with each function you put people that are focusing on finance and people that are focusing on marketing and people that are focusing on sales to be able to make the business a lot better than it was and a lot of those transactions they were doing or carve out or businesses that needed a little bit more attention to sort of

achieve their true potential and that's why they became successful. And that strategy for us, especially in 2008 when the downturn had happened was pretty impressive because there was a lot of companies that were suffering and needed turnaround and we were active. It was like dog years, those few years. I must have looked at a couple hundred companies to invest in and we selected like two or three. It was pretty intense.

JON STODDARD (08:49.193)
Yeah. And do you keep the management on when you do that? When you when you were doing that?

Pardis Nasseri (08:57.346)
You know, it depends on the strategy of the firm and management's ability to perform at the new level. Oftentimes, so there's cases that management stays and then there's some cases that management realizes, you know, what's being asked of them is twice as hard as what they were willing to do before or they were doing before. So they end up leaving. So it's a mixed bag. I think, you know, it takes an evolved manager to realize the new rules of engagement and want to sign up.

to doing it, but it does happen.

JON STODDARD (09:29.945)
Yeah. So let me ask you about Palm Tree now. What are you doing? Like give me a brief overview of what you do for clients now.

Pardis Nasseri (09:39.198)
Yeah, so we're unique in that we've got three different lines of service. One line of service being investment banking, which is basically, you know, you're helping companies raise capital or sell themselves or bring in a new partner. And then you're also doing transaction services, which is the financial due diligence that gets involved in sort of making sure you're buying a right company or on the sell side, making sure you're presenting the company.

And then the third leg of the stool is, yeah, exactly. And then the third leg of the stool is what happens the first 100 days after you buy a company. So that post-closed transition and transformation, which oftentimes ends up being longer than the first 100 days, because you identify things that you need to fix to be able to create value, and then we have teams that continue doing that for some time.

JON STODDARD (10:12.425)
Is that quality of earnings? Are you doing quality? Okay, okay.

JON STODDARD (10:36.397)
Let me ask you a question about racing capital in debt. If you go smaller, lower middle market, SMB, you're borrowing SBA rates at 11%. Buddy and I, we'll work on a larger deal, middle market, $22 million, and our sources are 6.785%. Where's that money coming from? The cheaper money.

Pardis Nasseri (10:38.883)
Cough

Pardis Nasseri (11:04.61)
The cheaper money is coming from institutional capital and it's coming from funds that have larger capital to deploy and they have different hurdle rates and different return thresholds. So they're able to be a little bit more aggressive although the rates have gone up significantly. So you're potentially not, those rates are probably a little bit higher.

Like anything else, the market builds in a premium for the smaller companies because the likelihood of default for those smaller companies is a lot higher than the bigger companies. So that's why they charge you a bit more. So their cost of capital may be the same. It's just that half of those loans may never come back.

JON STODDARD (11:40.79)
Yeah, yeah.

JON STODDARD (11:47.337)
Yeah, yeah, they got to factor that in, I guess. Yeah, they give us a range of 6.875 to 8 point something. Yeah. Yeah.

Pardis Nasseri (11:55.55)
Right, right. Right now, that is very expensive.

JON STODDARD (12:01.549)
So what do you do on the due diligence of the quality earnings? This is what I'm concerned about, especially in the upper middle marketing. And I'm going to evolve my question to how AI fits in that, because I've been playing with it recently and it is saving so much time in so many ways for me, individually, that I can imagine what it's going to disrupt in a bigger industry.

Pardis Nasseri (12:30.538)
Well, you know, it's you touch you touch something that is that is basically near and near to my heart because I and you guys and you saw this if you haven't seen it look it up Microsoft announced copilot and so I found out about chat GPT, you know, late last year and I have a lot of friends overseas and I was in this chat group and I couldn't sleep and I got up and it was just come out and I start playing around with it.

And I said, this is going to revolutionize the way we do everything because there's a lot of manual involvement in getting the data and analyzing it. And then, and then in terms of quality of earnings, putting that in a report and actually send and writing that report and giving it to your client with chat, GPT or AI or other machine learning. I see a future where you have a database that's filled with all your past reports. And as you go to create a new report, you just see what industry it's in.

what size revenue it is, and then it pre-populates it for you and you just go in and edit it as an editor as opposed to creating content from scratch. That's going to save so much time. Now the challenge is, the challenge with automation completely taking over the process of due diligence is that if you've ever done due diligence, you realize that most companies and their financials are pretty messy. So

If you're talking about a multi-location, multi-geography international conglomerate, well who's to say that the accountants in each country are using the line items exactly the same way? So there is this concept of what goes in is what you get out, so garbage in, garbage out. You can't uniform it. Until you get to a point where every company is using the chart of accounts exactly the same and putting the same type of expenses in each line item.

using AI to be able to really streamline diligence is going to be challenging. Now you can use AI to be able to line up your trial balances and look for trends and then you still need to have the human interaction. But what could take a week before to do, now you can do in like a day and a half. So that is the future. It's going to be a lot of efficiency that's going to get created, which honestly, John, I think it's going to take us back to, if you look at the deal makers pre-Excel.

Pardis Nasseri (14:49.666)
They weren't spending time creating these complex Excel models. They had to really understand the fundamental finance topics and understand the way business worked to be able to make a good decision. Somewhere along the line, we got really, we sort of lost the plot with creating these massive models and building these things in Excel. Now, if that can be done by robots, we can go back to really understanding the fundamentals of business and structuring a transaction. And to me, that's actually exciting.

JON STODDARD (15:19.613)
Yeah, I it's those data sets. If you've got a chart of accounts in some other platform and a chart of accounts over here in some other platform, you're just not going to get the, like Garry said, garbage in, garbage out. Yeah.

Pardis Nasseri (15:33.11)
Yeah, it's an interesting time we're in right now, and I'm very excited about it. We're not like the big firms, we don't have deep pockets to take an entire team of like 100 people and allocate them to R&D, but we are partnering with other digital transformation and AI firms to explore ways we can be more efficient at what we do, because as you go into the future.

You know, everything you do, and this goes for everybody that's listening to your show, that's investing in companies, everything, any business that you're looking to invest in that has a heavy human involvement, you should be asking yourself, how is this going to get disrupted? How can this be replaced by software or by a machine? And whether it's a process or whether it's an actual sales channel. And you need to be thinking about that right now because we're on this verge of transformation. And I'm sure you've heard of Moore's Law. Gordon Moore passed away a couple of weeks ago.

is that every year computing power is going to double. And it's crazy the computing power we have available to us and how that's being used to transform things. And every investor, every business owner needs to be thinking about.

JON STODDARD (16:42.529)
Yeah, what size of deals do you look for or work on?

Pardis Nasseri (16:46.322)
So it depends on which side of the house. I would say on our transition and transformation side of the house where we're doing the first 100 days to close, those are larger deals, those are multi-billion dollar transactions. On our due diligence side of the house, we're looking at stuff that's 250 million down to like 50 million, and our investment bank does somewhere between 100 million to 300 million in terms of transactions.

JON STODDARD (17:12.302)
Yeah. I have to ask you about this. I just saw a report that Warren Buffett unloaded some stock from a Taiwan Taiwanese manufacturer because he thinks there's a possibility of war. I mean, and I saw you did some deal in China, Hong Kong. What's your kind of opinion on that?

Pardis Nasseri (17:30.386)
We're in a very interesting time right now with geopolitical activity that's happening and this potential shift of power that's trying to happen between Russia, China, my former homeland, Iran, and the US, and then everything else. I mean, you also saw Macron, the president of France, going and trying to strike his own deals and negotiate and do his own activity.

JON STODDARD (17:54.321)
the value of the dollar, like yeah.

Pardis Nasseri (17:56.434)
Yeah, so there's this weird thing happening and I think the outside world is looking at the US has had, you know, the last six years have been somewhat unstable for us here in the US between the previous administration and the current administration. So our enemies are sort of thinking that we're weaker than we've ever been. And it's an interesting time to be looking at and thinking about that.

JON STODDARD (18:22.798)
I think there's a are you Muslim?

Pardis Nasseri (18:27.179)
I'm agnostic, I don't practice.

JON STODDARD (18:29.386)
Yeah, there's a Muslim thing that they always bet on, the Saudi Arabia does bet on the stronger horse. Yeah. And that's where they're placing their bets. That's where the geopolitical allies are placing their bets right now.

Pardis Nasseri (18:35.594)
Right. I don't know. It's a.

Pardis Nasseri (18:42.954)
I don't know. I think it's too early to kind of see what to tell what's going to happen. I think we have to see we have to see what happens with the elections this upcoming year. And then you know when you walk around and when you drive around the US or if you fly around to different cities, different cities have different economic profiles, right? So we're heavily investing in Texas and in Dallas because that city is booming, that state is booming and the economy there there's no sign of recession.

and look at San Francisco and LA and you're like, it looks a little tough out here because it's a...

JON STODDARD (19:16.833)
Yeah, I used to live in San Francisco. I can't believe the crime that's happening that I'm hearing from people. Just like I can't keep my car locked, it gets broken in all the time, et cetera.

Pardis Nasseri (19:23.351)
Oh, it's great.

Pardis Nasseri (19:29.622)
Yeah, it's crazy. It's pretty sad to be honest.

JON STODDARD (19:34.053)
Yeah. Hey, I got a question. This is popping up too, as you're looking at these larger companies with their ESG scores. How is that changing due diligence and investment banking?

Pardis Nasseri (19:48.094)
I think it's from an investment banking standpoint, you know, you're going in and you're helping a company do a transaction, right? So you're not, you don't really care what their ESG policy has been. You do care if what it's going to be in the future. So private equity firms coming in and you think about who private equity firms are, they're asset allocators and they have funds from a lot of public pension plans and

you know, institutions and those institutions, yeah, those institutions are requiring them to have a focus on ESG and not just ESG now but also DEI. So private equity from going in, they absolutely have to have a strategy for buying a company on how do they implement ESG as well as DEI. And I think it's a great thing because we do need to be mindful of these things.

JON STODDARD (20:19.117)
and they can score. Yeah.

Pardis Nasseri (20:40.35)
And just because we've done something the same way for the last, for the past, doesn't mean that's the way you have to do it. You have to evolve. You have to learn things. You have to do things differently. So I see it as an opportunity because if a company has it getting required by private equity firm means that they're going to be able to take it better. And they actually had the desire and the initiative to do it. So now they're going to be able to achieve more from it. And if they didn't have it, private equity firms are going to make sure they have it, which means it's going to be better for the, for everybody.

JON STODDARD (21:09.217)
You think so? I mean, look, I think, I don't know if we sit on the same side of that, because I've watched it just recently, that equity score of Dylan Mulvaney and putting him up in front of doing Budweiser-Bush. And I've seen they've lost four to $6 billion in value just in the last couple of weeks. That was good.

Pardis Nasseri (21:13.462)
Ahem.

Pardis Nasseri (21:28.606)
Well, I see why you're saying that and I can understand that. I guess I'm more focused on it from, if you look at the ESG, that has become a very politicized term. You almost have to break that up. When I'm talking about ESG, I'm really focused on the E. Because I think the environment is very important and that environmental aspect, you have to be mindful. Now, by being mindful, you actually have to do the research and not just regurgitate what

JON STODDARD (21:37.312)
Yeah.

Pardis Nasseri (21:56.77)
headlines, talking heads or pushing out. I don't know if that's happened.

JON STODDARD (22:01.501)
Yeah, I don't think so. And when you say you're investing in taxes, is that what kind of companies? Is there oil companies too or what?

Pardis Nasseri (22:12.331)
No, we're just, we're expanding our foothold in Texas and sending more people down there and looking to create a bigger office in Texas, in Dallas.

JON STODDARD (22:20.749)
Oh, I gotcha. I gotcha. The reason I said that is like another saw this recent interview with the guy from Shark Tank just was going to invest in a oil refiner.

Pardis Nasseri (22:34.743)
That's the opposite of ESG, right?

JON STODDARD (22:37.413)
There you go. Yeah. I got a whole bunch of questions here. So tell me about this. How do customers find you? And is it all referral? Are you having to do some kind of marketing aside from getting in a podcast? I guess like, I know a private equity guy has gotten on 100 podcasts and he says, man, I don't have to do anything else in marketing.

Pardis Nasseri (23:03.23)
No, we were just recently starting the podcast route and kind of talking to people and my focus has changed. I have, I'm fortunate that I have a very strong leadership team at the company that are, you know, managing the lines of service and the people and our clients and all that stuff. But the work that we do is like, you don't, you're not going to go do a Google search or read a Yelp review if you're going to do brain surgery.

You're going to go to your trusted doctor, you're going to talk with them, you're going to talk to people that you really trust who have been through that process. An M&A transaction is like brain surgery. It's something that most people do one time in their life. You can't mess it up. It has to be well thought out. So this is up for the investment banking side. So they go to people that they trust and that's all referral relationships. On the private equity side, when the private equity person isn't going to risk their career

a firm that they found out about on a Google ad, right? They're also gonna go work with somebody that they know at the referral. So for us, our number one business development tool or technique is doing good work. So making sure that the work product we deliver every day is the highest quality and that itself works out. So it's a longer play. We've been doing this for almost 13 years now.

And so we have a good reputation that we've built and we've never sacrificed. And we continue to focus on the quality of the product that we put out and quality of the people that we bring into the organization.

JON STODDARD (24:38.601)
Yeah, by the way, those two last statements, M&A is like brain surgery and the number one tool we use are great shorts. I mean, that is great shorts to use. YouTube shorts, stuff like that. Hey, I want to go back to the due diligence quality of earnings report on how you score somebody's

Pardis Nasseri (24:52.47)
Thank you, I appreciate that.

JON STODDARD (25:04.597)
business. Let me give you an example. We're looking at a lower middle market business. It's a fencing business and they did pretty well, $3.2 million in 2022, but they told us they're not going to do that much this year on how you score that going forward, even though it's a business that's been around from 1976.

Pardis Nasseri (25:26.878)
Yeah, so the biggest concept of quality of earnings is to be able to show your normalized earnings a company does, right? So and I'll give you a perfect example is let's say the company was involved in a lawsuit and they win like a million dollar settlement in their favor and that million dollars goes into the income statement. Now they come and show you that they haven't even done that's got that million dollar baked into it.

you got to take that out. So you as the buyer, you're the one who has to decide if you want to buy the company or not. And the way you do that is you look at the past because the trend is your friend, right? The past is a good predictor of the future. And then you build the model and you build the projections to say, cause you're buying the company based on its future potential, but what dictates the future potential is the past performance. So what we do in quality of earnings is say, okay, well, we think they had a COVID bump.

JON STODDARD (26:18.261)
the past. Yeah.

Pardis Nasseri (26:24.898)
they had a lot more revenue come in because of COVID. And the reason we know that is because we looked at the last five years and they've been operated at, you know, 35% lower in terms of revenue or margin or whatever than they did this year. So we normalize for that and give you a set of numbers that are more in line with what we think the business should be doing on a normalized basis. And then it's up to you to underwrite and say, okay, if I plug that into my model, what's the growth I'm anticipating based on what they've done in the past?

And you may have some information that you don't want to share with the seller, like, oh, I'm going to plug this into my existing platform, I have a network that wants this, and then you can justify the revenue growth, but you're not going to pay the seller for that. That's a secret you keep to yourself. And you just basically a conversation ends up happening saying, hey, you guys use your bankers and you went to market and you said your EBITDA was 5 million. We've done our quality of earnings and we think your run rate EBITDA is really...

4 million because you have that million dollars insurance settlement that you've put into that we're taking out. Now if you buy the company for let's just pick simple math say 10 times, that's a 10 million dollar saving because they were expecting 50 million, you're saying I'm going to pay you 40 million and the deal may die or may not happen at that point. It just depends on how aggressive the seller is and how realistic the seller is with their expectations. So for us, it's just literally.

breaking down the performance of the business to take out any noise or any one time and on recurring. And that could go the opposite direction as well. In that, in the case of the lawsuit, it could be they get zero, but they actually have paid a million dollars in legal fees. And you add that back because you're like, you're not, yeah, because you're like, you're not in the business of having lawsuits every year. So we're going to give you credit for that expense.

JON STODDARD (28:06.121)
That's coming out of the mallet. Yeah.

JON STODDARD (28:14.773)
Yeah. What have you ever given somebody a quality earnings report and given a range that they we think that the forecast projected earnings was inside that range or outside that range and what kind of changed that?

Pardis Nasseri (28:30.186)
Yeah, you absolutely always give them, you know, one additional analysis you do is to say, okay, the private equity firm says, okay, now take the projections that the company has and tell us how realistic you think they are in light of the historical performance. And so we'll look at that and we'll say, hey, we think, you know, we think it's aggressive. And that ultimately comes down to digging into the numbers behind the forecast, right?

The worst way to do a forecast is to say, well, we did 10 million last year and we'd like to have 25% growth this year, so our revenue is gonna be 12 and a half. That's like the absolute worst way because what's justifying that 25% growth? You have to break that down into like your performance with your customers. Well, our top 10 customers have told us that they're gonna be increasing their purchases with us by 25% next year and they want us to anticipate that and start building in inventory. So now,

you have a justifiable case for the 25% growth. But if you don't do that, and if you just say, well, I want it to be 25% higher, so I'm going to add 25%, that's like wishful thinking. Most seasoned private equity professionals, when they evaluate a company, they assume zero revenue growth. Some of them actually assume revenue decline. So they're looking at if the revenue declines, am I able to still justify...

JON STODDARD (29:31.755)
Yeah.

Pardis Nasseri (29:54.882)
the debt and service the debt that I'm putting on the balance sheet and hold onto it for a few years and then make money when I sell it. That's what they look at.

JON STODDARD (30:03.649)
Yeah. Hey, so these three roles you play, investment banker, quality of earnings, due diligence, the first 100 days, is that something you, three packages that you offer everybody or so what somebody does one just investment banking, you want to raise money and then you kind of upsell or down sell the others.

Pardis Nasseri (30:22.966)
It's a little bit of both. So we have had cases where we've used all three. Now if we're writing the book and our investment banking is going to market with the Palm Tree branded offering memorandum, we tend to not do the quality of earnings that's Palm Tree branded because that's a conflict of interest. What we do in those cases is we provide a lighter touch quality of earnings, meaning that we do all the work and we prepare all the numbers knowing that the seller, the buyer is going to bring in their own advisor.

we give them numbers that make sense and have had all the work done. So it makes their diligence process a lot easier and a lot faster. But we do, we do provide all the services for our investment banking side on the private equity side, which is, you know, our investment bank is like 85% privately held businesses, the 50% private equity, the consulting side, which is the transition and transformation and the new diligence practice. That's the exact inverse. So most private equity firms,

We'll use this for one, maybe two services, but not all three. All three sides of the house.

JON STODDARD (31:23.165)
Yeah, I got a curious question because they used to use the word Chinese wall. Is that racist now to say that?

Pardis Nasseri (31:31.322)
I don't know. I haven't had to think about that. But we, you know, I don't think it is because it's probably talking about the Great Wall of China, right? I mean, that's what it's talking about. So I actually, it came up in a conversation I was on today. We're a smaller organization. So we can credibly say, hey, we're completely separate because we operate as one firm, one vision, one organization, because we believe our value is in not having silos and

JON STODDARD (31:38.57)
Yeah.

Pardis Nasseri (31:59.622)
the whole firm working together. And it's great from a, you know, recruiting young talent standpoint because I wish there was a firm like Palm Tree when I graduated from undergrad because, you know, you go in as an analyst and you get to spend, you know, time in investment banking, time in due diligence, and then time in the post-close transition world. And you finish that after two years, if you decide to go get an MBA, great. If not, you can stay in the company and you have a pretty good understanding of

pretty much everybody involved in a strategic event in an organization, and you can decide which path you wanna go. Because these are all different paths, they have different demands on people, they require different personality types to be successful. So those are all things that you need to be aware of, and that you don't when you come out of undergrad, right? You're like, what?

JON STODDARD (32:48.105)
Yeah, I can go for 100 hours a week, that's all I want.

Pardis Nasseri (32:50.75)
Yeah, like what new undergrad, let alone some professional, is aware enough to know what their personality and then what works well for them and then what the job demands of them. That takes a lot of time for you to develop that and we give that ability to the HR analysts really pretty quickly because they understand with the exposure, they know that they're different than the guy that's in investment banking.

who is a risk taker and they're more risk averse. So you know, okay, you're probably gonna mean due diligence and the other one's gonna mean less banking. But some of that stuff you don't have access to if you're not seen, if you're not exposed to it.

JON STODDARD (33:28.105)
Yeah, it's a big big market out there. Let me let me go back to that investment banking. Are you becoming an investment banker, broker dealer, you know, licensed just to raise capital for other acquis, other clients, acquisitions, or are you actually raising the capital to purchase your own investments private?

Pardis Nasseri (33:46.454)
No, so we have an actual broker dealer because we want to provide this as a service to other clients. If we wanted to do it for ourselves, we wouldn't need, it's interesting, the rules, if you're raising money for yourself, you don't need to be licensed. But if, and we want for the whole, and there's a lot of investment makers out there, so if any of your clients are planning on using an investment banker, it's really important to make sure that that investment banker has their own broker dealer. There's a lot of smaller investment banks that

JON STODDARD (33:59.541)
Yeah, you don't need to be licensed.

Pardis Nasseri (34:15.446)
use another investment bank's license and there's nothing wrong with that but that just tells you how serious that investment bank is about their long-term prospects because they didn't even invest in getting the broker-dealer set up. Usually that scenario works for like, hey, I'm one guy and I have relationships and I want to go and try to monetize my relationships so I'll use somebody else's license. It's not easy to go through the whole regulatory process to set up your...

investment banking license and then maintain it. And we went through that. It's expensive, it's costly, I mean it's no small thing.

JON STODDARD (34:44.553)
It is not.

JON STODDARD (34:52.029)
When's the ROI on this?

Pardis Nasseri (34:54.23)
Well, you make the ROI. We've passed that. We've been fortunate. We've had, you know, we got our welcome letter from FINRA in November of 2020, right before Thanksgiving. And since then, you know, less than two and a half years, we've done over a billion dollars of transactions that we've sold companies or raised capital. And that's pretty impressive for a firm of our size, if you think about that, in that short period of time.

JON STODDARD (35:19.165)
Yeah, that's fantastic. Part of this is fantastic. I love these segments here talking about this. I had a list of questions here, and we kind of went over them. Some of them were pretty basic, but I wanted to get a just touch of stuff on that. Was there anything that you wanted me to ask you that would be good to have on it? Because I'm gonna edit this out later, part.

Pardis Nasseri (35:42.09)
Okay, I think maybe ask what makes a good acquisition, what makes a successful acquisition and a difference between a financial sponsor or like a strategic acquisition.

JON STODDARD (35:54.381)
strategic. Yeah. All right. So Pardis, let me ask you a question. What, in your opinion, what makes a successful acquisition? What are you looking for that target criteria, not only financially, but culturally fit?

Pardis Nasseri (36:09.758)
I think that you hit the nail on the head. I think it's all about the integration of the company and the integration heavily depends on the culture. Because if you buy a firm, and especially if it's a people heavy firm, if it's a service oriented organization, you have to make sure that the culture of the people coming in are aligned completely with the culture of your organization, especially if you're buying it to integrate them together. And I've seen a lot of transactions go wrong because,

You're asking the acquired company to perform by a set of rules they've never even signed up for and you're going to have attrition, it's going to be problematic and that leads into a very bad acquisition. So it really comes down to the integration and making sure that the cultural stuff, the core values of the company, those are all aligned and this is stuff that people don't talk about. But as we continue to...

create efficiencies through technology and getting smarter at finding business issues, the things that we're going to be focused on more is the soft stuff and that's the core values and that's the culture and that's what makes people show up to work and come to work every single day because that's the difference. That's the difference between you having a great company or just that good company.

JON STODDARD (37:25.533)
Give me an example of you have a conversation, you've got an owner operator that's buying a company, and it doesn't, it's not a cultural fit. I mean, you know, they could be conservative or liberal in the base. I go, look, it's not going to be a cultural fit. What's the story?

Pardis Nasseri (37:45.138)
It could be even more, it's probably even easier than that. So I'll give you a perfect example. CEOs who get excited about doing M&A, it's a vanity play for them. They wanna grow their organization, they wanna double in size, so they end up usually paying more than a financial buyer does. And a financial buyer is very disciplined, they're looking at, are the numbers gonna make sense? Am I gonna make a financial return on this? Because their job is to do that, to make a financial return. So...

JON STODDARD (38:12.053)
Yeah, I got a buddy that calls it, I buy cashflow. That's it. Yeah.

Pardis Nasseri (38:14.538)
Yeah, that's it. That's exactly right. So an EBITDA is a proxy for cashflow, right? So, but the strategic ones where the CEO's going out there, the CEO could have a great culture and they could have a competitor that's the same size and they get focused on, oh wow, I'm gonna bring these two companies together, I'm gonna be a CEO of a double the size company. Now, his company has got a pay structure where everybody works together and you...

All the extra margin goes into a pot, and at the end of the year, they decide who gets what, based on contribution to the firm, overall success of the business, tenure with the organization. The other organization, everybody's got a formulating number of they get a percentage of what they bring in. That organization's gonna have sharp elbows. You bring that in, and if it's a sales heavy organization, these two are not gonna mesh well together. And you're gonna pay a lot of money.

you're going to lose the talent on the other side or you're going to lose the talent on your side because they're not going to figure out how to play nice together and you have the monumental task ahead of you for integrating these two companies together. So that is really compensation drives culture and you have to be very diligent about it.

JON STODDARD (39:22.154)
Yeah.

JON STODDARD (39:25.425)
What are these like Charlie Munger said about compensation? I can tell you what it's going to look like just by their cop plan. Yeah. Yeah. What's the conversation you have with CEOs? Because CEOs are pretty known to having a big ego and not listening to ideas. Like, hey, this is not going to work out. What do you say to it?

Pardis Nasseri (39:30.89)
Yeah, exactly.

Pardis Nasseri (39:36.566)
Eh.

Pardis Nasseri (39:45.126)
You know, it's interesting you say that because leadership has evolved significantly and I my own journey as an entrepreneur, my leadership style has evolved a lot. And you know, in the old days, it was like the Jack Welch, the GE scenario where I'm at the top, I tell you what you need to do and you go do it. Yeah, exactly. Now where we are today, it's like the role of the CEO is to just basically walk around and make sure everybody in the company is supported.

JON STODDARD (40:02.17)
10% cut off from the bottom, you're out. Rick, right? Yeah.

Pardis Nasseri (40:13.578)
and has what they need to be the best in their job. And it's almost like being a therapist to your leaders and your managers to make sure they're in the right spot. They can give you what you need and they're willing to give it to you. So that's an interesting perspective. And if you think about CEOs that gets excited about an acquisition, the good ones that will take your advice will understand that. And you may have to remind them, but they'll get it. The ones that get really fixated and say,

come hell or high water, I want to do this transaction, you know that's not gonna work out well. And we have been in situations where we've said, you know what, our moral compass isn't aligned to yours and we're exiting this, we're not doing this anymore. So we're terminating our mandate, we'll cancel our fee, you guys go ahead and do it yourself because we can't, we don't want to be associated with this. Because you see a disaster happening. Because that individual.

when the going gets tough and when things get bad, then they're gonna want to point the finger to somebody because they're not aware that it's them.

JON STODDARD (41:16.479)
That'll be you.

Pardis Nasseri (41:17.618)
Yeah, exactly, exactly.

JON STODDARD (41:19.925)
Yeah. So tell me a little bit about what are you seeing more successful acquisition, a strategic acquisition or financial acquisition? And what are the reasons for that?

Pardis Nasseri (41:32.582)
I've seen them both successful. I've seen them both successful. It's just how disciplined they are. The key comes down to discipline. It's like if you're sitting down at the blackjack table and the dealer gives you a 17, you hit, right? But if you bust, you don't change your strategy. That's the strategy. That's what the rule book says. You hit up to 17 and then you stop hitting, right? And that's the same thing just because

If you find something wrong in the diligence process, you don't do the transaction. Or you go and you build guardrails around it, or you bring down the valuation. The gentleman who founded the private equity firm I used to work at, the plant of equity, he would say that there's no such thing as a bad deal, just a bad price. Because that deal, despite the issues it may have, it may still be a good transaction. You just don't wanna own. I would say don't mess up culture.

Because culture is something you can't really fix and you have to make sure the cultures are aligned and you can manage and control that culture, especially if you're doing a merger or you're doing a tuck in acquisition. But you have to be disciplined about the diligence process. You have to do the time.

JON STODDARD (42:44.745)
Yeah, when your guy at Platinum said there's no such thing as a bad deal, just a bad price, was he putting that into the strategic bucket price? Because everybody can say, hey, I'm buying strategic because I can plug this company into my channel and make my money back in X amount of time.

Pardis Nasseri (43:08.166)
I think that was more from a platform standpoint, more from buying a company that you're trying to build up and have it be a platform that then you can do strategic acquisitions on by growing it through a buy and build. So that initial platform.

JON STODDARD (43:10.857)
Yeah, okay.

JON STODDARD (43:21.011)
Ah, I gotcha, gotcha.

JON STODDARD (43:26.433)
Beautiful, man. Pardis, I really appreciate you showing up on the show, and I know we scheduled a number of times, but thank you so much.

Pardis Nasseri (43:33.798)
I'm glad it worked out today and I look forward to seeing it. So when will this be?

JON STODDARD (43:39.27)
Uh, I like this show because of the nuggets that you shared. So I'm going to probably work on this, have this worked on and ship it next week or so.

Pardis Nasseri (43:47.562)
Perfect, thank you so much. All right, take care, bye.

JON STODDARD (43:49.297)
All right, thank you. Wait, hold on one second. Oh, shit.