Rakesh Parikh: Valuation, Exit Planning, and the Hidden Power of Your Law Firm’s Address

Voiceover: Ron, welcome to the 1958 Lawyer, the show for attorneys who know the old model isn’t working anymore. The billable hour, the 12 hour day, the expensive office no one visits. Your host, Ron and Rebecca Bockstahler, are here to question all of that and more by exploring smarter, healthier, more flexible ways to run a law firm. No more burnout, no more outdated expectations, just real conversations with attorneys who are proving there’s a better way. If you’re ready to build a law firm that’s profitable and livable, you’re in the right place. Now, here are your hosts, Ron and Rebecca.

Ron Bockstahler: Welcome to the 1958 Lawyer, the podcast about the business of law. I’m your host, Ron Bockstahler, joined by my co-host, Rebecca. And happy birthday, Rebecca. It’s Rebecca’s birthday week by the time this show is being thanks. All right, here’s something most attorneys never run the math on: the average US lawyer bills $349 an hour, but the average hides the spread from 196 in West Virginia to $492 in DC, where you sit can be worth two and a half times your rate. Yet most solo and small firm attorneys set their rates and their firms without ever thinking about what their address signals or what their practice would actually be worth if they ever wanted to sell it today. We’re tracking or tackling both why your address is a pricing strategy, and how a law firm or any professional service business actually gets valued. Our guest is Rakesh Parikh, managing director, co-founder of Pivot Capital, a Chicago-based integrated M and A advisory firm. Rakesh is a CPA, a certified exit planning advisor, and a master analyst in financial forensics, with more than 25 years in valuation, M and A, and helping owners build businesses that are worth something when they walk away. Rakesh, welcome to the

Rakesh Parikh: show. Thank you. Thanks for having

Ron Bockstahler: me. I didn’t want to tell anyone that we were actually in college at the same time, living in the same dorm. I think you said you were on floor one, I was on floor three. That might not, that’s not going to go well. Let’s get, let’s get, get started before we get to the first question. I want to set the table for our listeners: everything we talk about today, your rates, your address, your overhead, ultimately rolls up into one number, what your firm is worth. With that, Rakesh, let’s start with you. You’ve spent 25 years valuing businesses, and now you’re the co-founder of an M and A advisory firm. What did you see in all those valuations that convinced you owners needed a different kind of advisor and led you to build pivot capital?

Rakesh Parikh: You know, we work in a niche space, we focus on founder-led, family-run businesses in that one to 15 million and EBITDA range. So, we’re constantly seeing small businesses disrupt larger businesses, and however, there’s a lot of risk involved, and I everyone looks at us and thanks to investment banking, lots of money, we’re in the business of de-risking our clients in hopes of them and helping them exit down the road at a higher multiple, so when you bring a valuation and key component to every business, we look at de-risking that part of their business, it adds value and it also enhances where they want to be, whether they want to exit now or they want to put off an exit down the road.

Rebecca Bockstahler: So, what does integrated M and A advisory mean in practice? Is that the risk assessment you were just talking about, or what do you do that a traditional investment banker wouldn’t be doing?

Rakesh Parikh: That’s a good question, so the way that I can explain is we follow more of an exit strategy process, exit planning. We help a client by engaging with them on the in the beginning or the front end and seeing what their goals are and trying to align that with an exit, so we look at the end in mind and we work backwards. It’s, it’s, it’s not a typical investment banking story. If you come from bulge bracket higher middle market, this is not what they teach you at Harvard, nor what it’s what they teach you at Goldman Sachs. We are holistically exit planners. We just happen to layer in M and A capital markets, and we use a lot of our consulting background to help a client if they’re not ready to exit. Most lower middle market businesses aren’t ready to exit. The financials are in order, their management team is not built out, their business development team is not built out. We help them build those different levers together and help them scale, and hopefully exit at a higher multiple. We’re constantly in talks and conversations, quarterly calls with some of our private equity council. Other parts, we know exactly what they’re buying, what they’re looking for, and it’s sort of an advantage to us. We can communicate that to a client and help them scale.

Ron Bockstahler: You mentioned de-risking. I kind of want to go back to that before we move on and understand exactly what are some, what are some tactics that you’ll recommend that get put in place to help affirm us. Let’s talk professional services firm de risk

Rakesh Parikh: with, you know, whether it’s a law firm, which is, which is what we’re discussing right now, or an accounting firm, whatever. I think that the talent is in the individual, right? They’re not creating a product, they’re providing a service in that service, there’s a value add to that service, and so what we do is we make sure when we go and we look at their financials first of all, and we look at, in this case, with attorneys, professionals, or any professional service servers, we look at the total addressable market, TAM for short, and we look to see, based on their address, what their billable rates are, or should be, in the area, the city 60 mile radius. I think when you’re, when you’re, when you have the pulse of private equity, private equity loves recurring revenue. So, professional service firms are at the top of that pile, they’re looking for accounting firms, law firms, anyone that has recurring revenue, month to month. Consistent cash flow is really the key here. Gives a look at financials, and we have to de-risk them. How are they reporting services? How are they reporting what’s their cost of labor? What’s their SG and A, which is, which is their, their basically their administrative cost in a line item on that administrative cost is rent. In this case, what is their rent relative to what they’re charging? Is it too high? Is it too low? And these are some of the things, some of the line items, private equity, when they, when they value a company, what can they eliminate? One can they put on the books? What can they take off? What’s going to add value? Obviously, the higher EBITDA, which is at the end of the day the net number, and then they talk in terms of multiples, what can we a pay for the company, and ultimately what can we exit this firm when we roll it up to a platform company. What can we exit upstream to an even larger private equity firm, and ultimately that plays a lot into it. So, when I mentioned de-risking, de-risking is, you know, there’s constraints, there’s value propositions, there’s billable rates. I think the address plays a big part of it, and obviously you know when you’re looking like a city like Chicago, you expect the rates to be a little higher, but at the same time you don’t want to alienate clients, you want to make sure that its marker rates are a little higher, so you could attract, you could attract honey, right, with our bees with with honey, as the expression may go.

Rebecca Bockstahler: So, can you walk us through a typical engagement? If an owner of a professional service firm, a law firm, an accounting firm calls you, what happens in the first 90 days?

Rakesh Parikh: So we have a discovery call, and we have more than one discovery call, the, you know, helping a client exit a business may sound really high-level sexy. Generally, it’s long-winded. If there’s exiting a private equity, private equity loves to retrade. It’s really a battle of mental wits. You know, how long can one last? Our fastest deal was six months, we’ve had deals that are coming up on two years, just because there’s legal difference of opinion. So to answer your question, we have multiple discovery calls, we want to absolutely make sure that the client is ready to engage us, but also you know they have the wherewithal to get through the process. We don’t want to get all the way to the closing table, and they change your mind because they’re just not ready, or they don’t have another option. What they sell their firm, what’s next in life, and they haven’t really thought that through. So, the best thing, and the easiest thing, is like, I’m not selling, so we try to avoid that, and really, after one or two discovery calls, there’s a scope of work that’s presented, sort of like a proposal. These, this is the timeline. It could be six months, it could be eight months, nine months. Typically, at that time, we have three or four private equity firms that we think that are on our radar, that would be that would make a great introduction to the professional service firm CEO or management team, whoever’s really at the day in charge of making a decision to sell the company, and then we start with evaluation, which is critical, I think evaluations. That’s the tone creates a roadmap for us, and based, you know, that valuation will include a discount cash flow model based on historical and projected financials, which is low hanging fruit. We also will go out to the market and comp a firm based on address, based on number of employees, based on specific vertical, what are they? Are they personal injury versus are they an M&A attorney? Are they strictly real estate, commercial real estate? So, so we’re really pinpoint and pull comps that are strategic, and then if there’s any other assets, and we’ll comp it based on book value, which is really the last of evaluation processes, but that’s really the first and foremost, and then we have that I like to say come to Jesus talk with with the client and really see where they want to pivot, hence the name Pivot Capital, they still want to proceed down the lane of exiting their firm to institutional buyer or a private equity or another strategic, or do they want our help in helping them potentially scale, maybe grow out their lines, maybe grow through organic growth is slow and painful, or maybe grow through acquisition, partnering up with another local firm to create one big firm, and that’s typically how generally the model is, is growing through acquisition as another option. So we present the client with multiple options, but you know, to answer your question, we start with discovery call, and that leads us into evaluation.

Ron Bockstahler: Rakesh, I opened the show with this, and I put it to you directly. Same lawyer, same skills, 196 an hour in one state, 492 in another. From a valuation guy’s perspective, what is an address actually doing economically? Is it cost, is it signal, is it pricing power?

Rakesh Parikh: It’s it’s a little of everything, right? I mean, you know, an attorney in Chicago, you know, 450 you know, selfishly I wish that was a rate, they’re much higher, but I think you know a lot depends on expenses too. It really boils down to that, that EBITDA number, you know, what is that bottom line, and you, when you’re in Chicago, the attorney that’s charging 450 or 1000 $2,000 an hour, chances are that his, the address that he’s, that he’s obviously out of, is you know, a higher price per square foot, as far as you know, rent is concerned, so really comes down to an attorney in West Virginia is charging 149 his monthly rental rate is a lot lower, the bottom number is critical, but you know at the same time there’s certain constraints with the attorney in West Virginia relative to the attorney in Chicago, I think there’s a much wider net. I mean, when you have an office strategist in Chicago, I think you’re going to capture more sophisticated clients, you know. There’s a lot of intangibles that doesn’t show up on the balance sheet of the P and L that are part of that. There’s a lot of constraints with an attorney in West Virginia relative to an attorney in Chicago, so hopefully I addressed your question, but we look at, we look at the total, the total addressable market, and we look at the billable rates also, and this is exactly our vetting process, similar to what private equity will look at,

Ron Bockstahler: I want to not part of the show, per se, I guess, but I want to talk about because I’ve asked a consultant person, a friend of mine, to do an evaluation for me several times, or a paper on the value when you’re going to buy a, I’m gonna say law firm or professional service firm, the firm has a 1012 year lease, how does that affect the valuation if they’re selling the firm and they’re not going to need that space anymore, and is that going to have a negative or is it ignored? Is it, is it like a fix, a waste, or what do you call that, a cost just goes away with the purchase? Because

Rakesh Parikh: I’ll give you an attorney response, it depends, it

Rakesh Parikh: depends, so So, there’s something called add backs. When you, when you’re doing a high level evaluation, we normalize numbers. Typically, when you work with founder-led, family-run businesses, there are some personal items that are charged to the business. Those need to be taken out to come to a real true up value valuation. So, when you talk about longer term lease, and you know, private equity firm or another larger law firm makes an offer to a smaller law firm, they are looking at, you know, hey, listen, if I acquire this law firm, their six man outfit, and they just. Buying a long-term lease, you know, what are my outs? Can I, can I, can I buy the lease out? What’s that going to cost me? I mean, these are critical decisions, very important decisions. You’re talking about, you know, some one-time charge, but it could be, you know, huge for the acquirer, and also, you know, when you’re, when you’re looking at the, the buyout that also reduces some of the proceeds to the seller as well, so these are some critical, whether it’s long-term leases, any sort of subscription agreement, long term, a lot of these, whether it’s tech, technological, or you know, other commitments, whether it’s with attorneys or in your case, in this case, you know, long-term leases, it could be a, it could be a benefit, it could be a detriment to the deal.

Ron Bockstahler: Interesting. Well, let’s get into valuation. Our listeners here hear the rule of thumb, solo practices often selling for half to three quarters of a year’s revenue, while multiples across professional services can run anywhere from point three to three times. That’s an enormous spread. When you value a professional service firm, what actually determines where in that range you land?

Rakesh Parikh: You know, I think that when it comes down, so valuation and what a buyer will pay completely different. You can have a high value valuation in a strong market like Chicago or New York, but it all depends on what that buyer will pay, and sometimes they’ll, they’ll pay full value, or they’ll, they’ll pay a one to 2x multiple on the EBITDA, and in some cases it all depends on on the law firm customer concentrations, big, big, huge consideration demographics, you know that lane, which should they practice in personal injury versus mandate versus real estate. I think that it comes down to it’s very subjective, and valuation is more art than science, so it’s really what the buyer will pay. It’s, you know, I see this all the time. You know, my valuation is here. Why aren’t they? Why aren’t they paying, or why aren’t they offering that? It’s what a willing buyer is, is you know, is offering based on what they think the true value that that business is. And you have to have two meetings of the mind, so completely different when a buyer will pay and what the valuation will come in at, and who’s valuing the company. Also,

Rebecca Bockstahler: it’s interesting. So, it’s been written that a business that runs without you is a business worth buying, but for a solo attorney or solo professional firm, that kind of sounds like a paradox if they are the business. So, what can a solo or a small firm realistically do that makes their product worth something to someone else.

Rakesh Parikh: Very good question. And so this this aligns with what our practice focuses on, the exit planning. So what we try and do is we try and talk to a solo practitioner or two or three person shop, and you know this is very consistent with with mom and pop businesses, is let’s plan the exit, and what that means is removing yourself from the day to day, be the CEO, but have you know, extend your, your service line through adding more employees, or building out your management team, or potentially building your sales force. Every time you do that, you remove yourself. I’ll use a private equity example. Private equity wants to layer in capital, they want majority control. They also want to layer in capital. They don’t want to be there to run the business day to day. So, when they buy a business, when they buy your practice, they want to make sure that if something happens to you, that business is going to run every day and produce them an ROI that’s attractive to their investors. So to answer your question, we start with an exit strategy and we break it down through a checklist and a process that way,

Ron Bockstahler: so you’re a certified exit planner advisor, and I’m gonna have to, you got to give me all the meanings of all these initials, because you got, like, you know, a whole.. I don’t

Rakesh Parikh: even think I know what they are,

Ron Bockstahler: so an attorney listening right now is 50 years old, healthy, loves the work, has plans, no plans to sell. Why should they care about any of this today? And when is the right time to get evaluation done?

Rakesh Parikh: I think anytime is, I always recommend evaluation each year, especially if it’s a growing practice you want to. Have your pulse on the market at any given time. There’s one thing to have conversations with colleagues over a beer or two, that’s not evaluation, you know, that’s more of your internal assessment on what the market is. I think that, you know, I think it’s great to have evaluation. Also, evaluations are more than just, you know, buying and selling business. It’s also about, you know, offering partnerships or some sort of equity to maybe a junior associate or an associate or maybe a senior manager. If you’re looking to expand, it’s more to incentivize employees under you to help you grow that practice. You’d be surprised how many founders, owners that I talk to on a daily basis, they’re especially in this market, they’re unsettled about their employees and whether they’re going to stick around or whether they’re going to leave, and I always ask questions, What are you doing to incentivize them, or is there sort of any sort of ESOP in place, or you’re offering them benefits, and I always feel like you know these, your partners and your employees are your best sales people, and they’re going to go out there and really spread the gossip about your practice, and how great your practice is, and bringing the business. Why not? Why not give them a little piece of the pie? It’s only going to increase the value of your business. So, as a solo entrepreneur, or a multiple person practice, 50 years old, and most businesses that way are more lifestyle practices, but it’ll be looking to grow, and you’re looking to remove yourself, and you’re looking to take that two week vacation in Europe. I always recommend that they start looking at some of the some of the colleagues they have across the table and give them a little piece of the pie, incentivize them to bring in more business, and you’d be surprised how many will work harder, and you know, as much as I scream that at the top of the mountains, no one really, you know, it’s very little, it’s a small percentage that really takes my advice.

Rebecca Bockstahler: Yeah, what are some of the biggest misconceptions that owners bring into the meeting about what their business is worth.

Rakesh Parikh: I think a lot of it has to do with the information that they’re given, you know, in a lot of rely on friends and family to give them feedback on valuation, not understanding the process, the cost of capital, the projections, none of that’s taken into consideration. So, some of the misconceptions is that you know my business is worth x. My friend down the street has a very similar practice, he just sold his practice for x, but not every business is the same, so you’re not comparing apples to apples, especially, and that’s why evaluation is critical and important. If you’re in the mindset and you’re ready, and you’ve, you’ve, you’re ready to sell your practice, really find a way to, you know, engage us to find a buyer. I think you need to find, you need to really hire someone that can provide a defensible evaluation for you, really give you an understanding of what the bottom line is

Ron Bockstahler: every year. Wow, but you know, I never thought about that doing evaluation, because you want to bring on a partner, but you want to give them some kind of equity, or you want to promote an attorney to be, you know, have some equity in the, and maybe don’t have to pay them quite as much cash out of your fund, but you get kind of an incentive on a partnership basis. You need evaluation to do that.

Rakesh Parikh: Absolutely, and with an ESOP, you need an annual valuation. There’s a trust administrator that’s hired to oversee the ESOP. An evaluation is required every year.

Ron Bockstahler: Interesting. A quick read on the market before we wrap. Where credit deal activity sit in 2026 is this a good time to be a seller of a professional service firm or a buyer?

Rakesh Parikh: I think if you asked me first quarter this year, I’d say no. Hold on, no one’s really.. there’s nothing out there. There’s private equity, there’s still a lot of dry powder on the sidelines. Private equity is being very picky. If you, if you research and read about the private equity market and what they purchase in 2021 22 and 23 there’s a lot of, lot of lemons out there that they purchase, so a lot of them are doubling down, but a lot of them are just staying put. And then there’s a lot of players in the private equity market, you know, it’s, it’s a, it’s a multiple trillion dollar business right now. What we’re seeing in the market is we’re seeing a lot of businesses pivot in filing S ones there to go public, and that’s an interesting. Observation, we haven’t seen that in quite some time, so as far as you know, the equity and debt market, private credits really hot right now, and I always say anything is really hot, you kind of want to run away from it, because there’s there’s always a bubble, but there’s there’s a lot of private credit funds popping up, interest rates, I don’t know if it’s akin to subprime, but you know, private credit is subprime relative to traditional lending, but the rates are short of coming in line, maybe a little lower than traditional lending, and you could close a deal with private credit in probably as little as four weeks on a deal, as opposed to traditional lending, may take you six months, seven months, so it’s easy to pivot, especially if you have a hot deal, multiple buyers. There’s an auction process, which investment bankers love to do, if they’re not bringing strategic or financial buyers to the table, kind of bid up that price. Private credits ready to go, so private credits hot, private equity, as far as raising LP or equity money, it’s still a lot of it sidelined right now, so little bit about,

Ron Bockstahler: so I want to make sure that listens, they call you, because you’re going to help them find those potential buyers, potential investors, you’re going to kind of bring them all together,

Rakesh Parikh: correct? So I should have backed up in part of the introduction. So, Pivot Capital, we’re a boutique investment banking firm with three core verticals, mergers and acquisitions. So, we’ll represent a seller, what they call sell side advisory, or a buyer. If a buyer has a mandate to purchase a certain business in a certain industry, we’ll help them purchase that, then in that will bring or raise equity and debt alongside the buy mandate to help them purchase that, and then the third vertical is more my lane, that’s more on the free transactional diligence, there’s so many words, consulting transaction advisory, I’d like to coin the word, which private equity value creation. So, you bring us in to help you, whether it’s fractional CFO, we’re a short-term gap to a to hopefully fill in for a long-term solution. So, quality of earnings valuation is a core deliverable. We can even come in some tax analysis, preparing a closing balance sheet. These are some of the individual deliverables on the consulting side that we can provide. So sellers would call us if they want to sell their business. We’re federal license, which is important, you know. We’re some people have us confused with business brokers, which we are not. We’re actually licensed to take them through a process, and everything is done under the guidance of Fenron. The SEC

Ron Bockstahler: good distinction.

Rebecca Bockstahler: Yeah,

Ron Bockstahler: Rebecca, anything else you want to jump in on there?

Rebecca Bockstahler: No, I just thank you for sharing your time and your knowledge. It’s been really interesting for me to hear,

Ron Bockstahler: like, we walk in these experts, Rakesh, you come on the show and you educate us, and it’s like, wait, I didn’t know that. So then you know all these questions build up, you’re like, we’re gonna get you back on the show, because then I’m gonna have a whole litany of new questions for you, and say, you know, I’m so there’s, you’re saying there’s still money on the sidelines, even though SpaceX is going to be eating up, you know, 80 billion, and Google’s gonna eat up 80 billion, and Lord only knows what Anthropic and Chat GPT is gonna eat up. I mean, how much money

Rakesh Parikh: is there? There is trillions of dollars. There’s a lot of money, and you know a lot of these. So, we’ll, you know, if you bring me on the show. We’ll talk about secondaries, you know, in a lot of these going, a lot of these companies raising capital through subscription agreements, they go public and now their shares are public. This is high-level management, they’re looking to sell their shares or leverage your shares into cash or a lot of credit or some, some of that starts, so we can talk about all that you know on another show, but that’s more the capital market side. So, well,

Rebecca Bockstahler: it’s interesting because Ron always wants to bring people on for a second show, and I just want to hire everybody. I want to start a process. What’s next? We’re happy to do..

Rakesh Parikh: we’re happy, you know, if we have time, real quick story. We bought a networking company yesterday. We were in talks with the founder for probably well over 90 days, issued a term sheet. We had probably nine iterations of that term sheet finally. He signed this morning, so the next step is going through the attorney, so we’re going to be part of a commercial real estate networking group that has 10 locations around the country, and you know this is a case study, and happy to share, you know, once we close a little bit of the. Deal with the audience, but certainly this is a typical founder-led older gentleman. Just wanted to exit. We advise them of the exit planning strategy. He still had some, some miles, some in the tank, but wanted to bring us on and wanted to bring us on as partners in the deal, so stay tuned on next steps. Next show,

Ron Bockstahler: that’s next showing. And congratulations. Thank you, Chris. Thanks for coming on. You connected the dots between the rate and attorney change charges today, and the number of the closing table. At least we’re trying to connect those dots and kind of get a little closer. I think it’s a lot of dots to bring all together, right. It’s going to be, it’s going to be definitely more than one conversation to get there. If today’s conversation got you thinking about what your firm is actually worth, I hope you’ll take one idea from Rakash and put it to work this week. You can learn more about Rakesh and the team at Pivot Capital, it’s Pivot Capital llc.com that’s Pivot Capital 2l c.com or connect with Rakesh on LinkedIn, and we’ll have all this information in the show notes. So, please go there and check them out, give them a call. If you enjoyed the show, please just subscribe, leave us a review, and share it with a colleague who could use it. The 1950 lawyers brought to you by Amata. For more than 30 years, Amata has helped law firms of all sizes do more with less, built on our five pillars: fractional support staff, virtual office options, office space, legal community, and now marketing support. Whether you’re a solo practitioner just starting out on an established firm or an established firm looking to right size your overhead, Amata gives you the infrastructure of a big firm without the big firm price tag. Learn more at AmataOffices.com No, learn more at Amata corp.com I got this stuff all wrong. Until next time, work on your firm, not Justin.

Voiceover: Thanks for listening to The 1958 Lawyer. If you like the show, tell a friend, and please subscribe, rate, and review us on Apple, Spotify, or wherever you get your podcasts. If you’d like to hear more about Ron, Rebecca, or Amata, go to AmataOffices.com That’s AmataOffices.com All the links are also in the show notes.