Q & A with Paul Giannamore from the Potomac Group
[00:00:00] Joe Sheehan: [00:00:00] What's the best place in your opinion, to open a pest control business?
[00:00:05]Paul Giannamore : [00:00:05] Am I thinking about it from an end game perspective, where is a better place to be from being acquired or? Here's how I look at it. Anytime you talk to somebody that's outside of the industry, they always say.
[00:00:19] Why would you ever open up a business in New York or Michigan or Illinois or Maine or any of these States? Because all the bugs are in the South. Right. And that's what people think, clearly there are more pest pressure there. How I tend to look at business is really from a competitive dynamics perspective.
[00:00:33] And I think the things that you guys deal with up in Mid-Atlantic and New England and Minnesota and Wisconsin, I think that bodes very well for an operator because number one, Seasonality really kills a lot of weaker players. These guys can't make seasonality work. It's expensive, right? You've got wild swings in cash flow , for the most part until the Northern States run everyone out of town, from an income [00:01:00] distribution perspective, you tend to have a lot more people that can afford these types of services, both on the commercial and residential side. Although that's starting to change but there's just less competition in cooler markets.
[00:01:11] And for me, I like less competition hell, go to Florida. And there's a pest control company on every single corner. Right. Everyone's sweating each other's throat, shaving a buck off here, a buck off there. Next thing you know, everyone's giving hand jobs in the alley for, you know, 25 to the cheeseburger. I mean, so I tend to look at it from a competitive perspective.
[00:01:29] when you look at the state of New York, for example, I think the Island's an interesting area out in Long Island. I think that there's the larger players really have struggled over the years to get operations really off the ground there, you know, Orkin's always had a presence, but Rentokil is really weak there.
[00:01:46] Anticimex is weak there. Terminex. I'm not sure what the hell they're doing out there. So I like Long Island. I think that's interesting. I like a lot of upstate New York markets. For example, if you get into like a Utica or a, you know, one [00:02:00] of these types of tertiary cities where there's not a lot of competition, you can have a lot of market share.
[00:02:05] You guys are in a tough market in New York city. You got a lot of competition. And so you guys are, you know, not only fighting with the customer, but you're fighting with competitors there. So I don't know if there's one. When I think about the United States, if there one particular geography that I would think about being better than another, but I really do look at, for me, It's like, Hey, do you want to be on the commercial, the residential, or do you want it in a mixed business?
[00:02:34] And what makes better sense? I have long said, and you guys have probably heard me say this, that secondary and tertiary cities are sometimes better from a competition standpoint. Northern markets, in my opinion, are, are better. You get higher pricing. Seasonality is a barrier to entry and there's less when you exit they're less potential targets.
[00:02:52] In New York and Maine and Massachusetts. And then there are already go down to the South Carolina, Georgia, Florida. There's a [00:03:00] ton of companies to buy down there.
[00:03:02] Joe Sheehan: [00:03:02] You speak about Long Island? The number one Mosquito Joe is in Nassau County. Yeah. So you think about all these other warm States that are warm year round?
[00:03:12] Paul Giannamore : [00:03:12] Absolutely . And I think in pest control, I think that the fallacy is following pest the right way to do it as follow the people, institutions that have money and desire to pay for the service. Right? I mean, shit. I spent a lot of time going to places like Nigeria. You want to talk about Pest?
[00:03:29] There's a ton. You go to the city of Lagos. There's a ton , of, pests. They're one of the biggest pest control companies in Lagos Nigeria makes 300,000 US dollars per year. They got like 200 employees just think about that. So ton of pests there in Lagos, not a lot of money to pay for it. yeah.
[00:03:46] To follow all of the money.
[00:03:48] Joe Sheehan: [00:03:48] Yeah. Like with everything else follow the money. Right. Even for the criminals.
[00:03:51] Paul Giannamore : [00:03:51] Yeah. That's right.
[00:03:53] Ed Sheehan: [00:03:53] Willy Sutton robbed banks because that's where the money was right.
[00:03:57]Joe Sheehan: [00:03:57] It doesn't get any simpler than that. Right. [00:04:00] So we speak about selling and everything like that, and multiples back to where they were.
[00:04:06] Do you think it's a good time to sell? ,
[00:04:09] Paul Giannamore : [00:04:09] That's always kind of one of those arbitrary personal decisions that everyone's got to make. I think, transaction multiples are kind of where they were in 19. So the last two years they've really been at a zenith. They're going to continue there.
[00:04:22] I me an, the question becomes, unless something crazy. CRAZIER happens. I should say, I don't know that we're in any sort of immediate threat of that stuff falling apart. I think the biggest issue that older sellers have to really think through is maybe not so much evaluations, but more so taxes. I mean, if you think about it, you guys are in New York, right.
[00:04:46] And let's say that, you know, the government decides to go after the, the greedy businessman, the enemy to all things good. Right. You guys should be paying short term capital gains tax rates, as opposed to [00:05:00] long-term on the sell your business. So now you've got basically state and federal long-term capital gains go North of 45%.
[00:05:08] Right. And then by the time, you'd allocate purchase price. If you guys took your business under that regime and sold it, you're talking about 50% of your purchase price would go to some sort of a government institution. That in my opinion is a big threat. And I don't think it's on the immediate horizon, but I think there's dark clouds there that people have to think about this.
[00:05:31] And I think it's just a warning to everyone to say, okay, It didn't happen in 2020. It probably won't happen in 2021. It's going to happen. So let me make sure that I talk to a sophisticated tax advisor, get my ducks in a row. Let me think about valuation. Let me think about that plan. This is a nice warning shot for people because things are changing.
[00:05:52] Trump's out. It's a different environment. You know, the problem that I have with the United States, unlike a lot of other countries is, you [00:06:00] know, The U S has built this massive kind of super state based in DC. And the majority of taxes are federal. They're not local taxes. It's not like when you go to Switzerland and you've got the highest federal tax rate is 12%
[00:06:13] Ed Sheehan: [00:06:13] What's that?
[00:06:15]Joe Sheehan: [00:06:15] The highest federal tax rate in Switzerland, 12%.
[00:06:17] Ed Sheehan: [00:06:17] That's nice how do they do that in Switzerland the highest tax rate is 12%. How do you run a country on 12%.
[00:06:27]Paul Giannamore : [00:06:27] Well, they're not proliferate spenders like the United States. They're not policemen of the world. they have 12% federal tax. Most of the taxation in the 26 cantons is at a, a local level.
[00:06:37] So Geneva has relatively high taxation. Versus Zug, which has very low tax. And, look, you guys are in New York. You can move to Florida. You can escape New York taxes. If you move from Pennsylvania, where state taxes are like 3% go to Florida, you don't save a lot. You might be paying a marginal tax at 37% of the federal government in Switzerland, though, you're paying 12%, but you can go from like [00:07:00] Geneva's 20% additional taxes down to Zug and pay 5%.
[00:07:04] So. there's tax competition. It's similar to how the U S was under the articles of Confederation, where all the States were effectively sovereign States and had their own taxing body. And now it's all been consolidated into a superstate and DC and. There's really no escape for Americans. I mean, it's, it's, it's getting to the point where everything's run out of DC and you can't do things like people in most other countries in the world.
[00:07:30] I mean, most others citizens in most other countries, all but Eritrea and the United States can move to another country and not be taxed. if you're Canadian, right? You can move to Spain. I don't know if you'd want to do that, but if you did, you would no longer be taxed by the Canadians.
[00:07:44] You guys moved from New York and you moved to Spain. You're dealing with U.S Taxation, Spanish taxation. It's very complicated. It's very expensive. And it's unfortunate because. I always giggle. When folks talk about Americans being, you know, U.S [00:08:00] being the land of the free, you know, that propaganda continues to work, at least in the United States.
[00:08:04] But I think if you go outside of the United States and you look back, you start to feel bad for Americans because they don't have nearly as much financial freedom as they believe they do, especially in juxtaposition to a lot of other people around the world, you know, and standards of living over the world are, I spent a lot of time in Malaysia.
[00:08:20] I mean, People are printing money there. The quality of living is increasing at a dramatic pace and it's very different. , I spend a lot of time in countries all over the world every year, and always there's like absolute comparisons. I think people know the United States like to make absolute comparisons to other countries, but I make comparisons on trajectory.
[00:08:45] Which way is it a country that might have less freedom and Liberty than an average American does, but is moving rapidly , into freedom and financial freedom and liberty is more euphoric and feels [00:09:00] better than I feel like in the United States where things are moving the other way around an absolute level, there might be more freedom, but it's definitely without a doubt going the other way, which I think gives a lot of people.
[00:09:11] Business people get up in the morning and they just say, shit, it is hard to run a business in the United States now because every one of these laws is set up to protect losers, just complete worthless scumbags. The people that are going to take advantage of you and other people that don't want to go to work every day.
[00:09:28] That's what the laws are to protect, and it gets harder and harder and harder to run a business in the United States where, I don't know. So Ed I know I'm probably preaching to the choir over there and Joe I'm sorry to get you off track,
[00:09:40]Joe Sheehan: [00:09:40] no, look, it's fine. I think it's true I will tell you I'm 44 years old.
[00:09:45] And for the first time in my life, I'm not saying I'm going to live here for the rest of my life. And that's a big statement because I was always like, why are we going to leave New York its the best place to live. That's not true anymore.
[00:09:58] Ed Sheehan: [00:09:58] You know, I [00:10:00] remember back in the seventies when New York was going bankrupt, I think people were leaving and it took, it literally took like a 20 year turnaround to get back to people, wanting to come to the city.
[00:10:11] And then, you know, 10 years ago, this was the place to be. Everybody's coming. Everybody loves Brooklyn. I was walking down Flatbush Avenue, about two years ago we just did something on a big account. And, I looked and I was saying "I remember coming down here and the highest building was this bank building that was maybe 25 30 stories.
[00:10:33] Now. On the size of a postage stamp. They've got these apartment buildings, mixed use buildings, and they're like 60, 70 stories. High! The reason for that was the property values got so much in Manhattan but I don't know, you know, I'm from you get your first apartment. It was $120 a month.
[00:10:53] Pre-war a lot of, space. Now, you know, kids today I got a deal 1800. It's a studio. [00:11:00] Yeah see . So for guy in my time period it just seems wow,
[00:11:07]Joe Sheehan: [00:11:07] I was speaking to a friend of mine who does accounting.
[00:11:10]Just the end of the year stuff. He goes and works at a firm for side money. talking about savings him. And I talk about stock market often and saving money. And he was like these Google, Amazon employees making nobody makes less than two 10, and they all have no money.
[00:11:27] Yeah, I think that's part of the problem too. How will you make it? 210,000 even in New York and you're this educated and you're, and you're that broke. And I think it's that consumerism is probably the best way to put it is partially what's doing it too. So they're making enough money. They don't own homes.
[00:11:45] They rent for six, seven, $10,000 a month. And they don't have anything,
[00:11:51]so last time we spoke, we spoke about the stock market and, it hasn't done what everybody thought it was going to do. If Biden got elected, [00:12:00] everybody thought immediately, it was just going to take a nose, dive.
[00:12:03] What, what are your thoughts? I remember you pulled out of the stock market in April and you were just sit back and relaxing.
[00:12:09]Paul Giannamore : [00:12:09] Oh yeah. I'm out. I've been out. And, yeah. I mean, look, I think the only thing that I think everyone was scared of this whole blue wave, right? So that didn't happen. So I think everyone looks and says a Biden presidency with a, you know, a divided Congress is pretty benign.
[00:12:24]and the other thing is, I think the last time we chatted , the us government hadn't gone into debt to the tune of an additional $3 trillion, which they did over the summer. So that's a ton of ton of money going into markets. we'll see what happens over the next few months.
[00:12:39] at the end of the day, I am very apolitical. I don't vote in the United States and haven't been around for a long, long time to do so. But , you know, Joe Biden is officially not the president elect until the electors go to DC and cast their ballots.
[00:12:51] Right. So we're still in that phase where, he's just not president elect yet. And it'll be interesting to see how, how the Trump administration continues [00:13:00] to deal with this. There could be a lot of uncertainty guys, right? I mean, think about it. If Biden really is elected and Trump refuses to acknowledge that, you can see it could be a very interesting January. So maybe January one, like you said, it maybe shit, January one will issue in a more and more interesting year. So we'll see,
[00:13:17] Ed Sheehan: [00:13:17] I think with the Biden presidency, but you never know for the first two or three months when they've actually got that power, it's when I get a firm idea, like where are we going?
[00:13:28] Where, where could we be going? Where does it look like we're going. Everybody's happy. Every lot of people are happy. He got elected. A lot of people are not, but there's, there's that holding back. And I think if Trump doesn't concede, the way life is now, you don't know where the hell you going.
[00:13:45] Now you got this guy, that guy, I don't know. It's very, very confusing. Whatever it is, it's confusing. So my theory is, keep your head down, do the best job you can keep working.
[00:13:56] Yeah. A hundred percent agreed, that's [00:14:00] why I don't pay attention to politics at all because just, it's a total waste of time.
[00:14:06] I'm all about getting down to business and making money. That's what I focus on.
[00:14:09] I have more leisure time than you and I stopped listening to news in the morning. And, sometime around April, my shows became the three Stooges, Andy of Mayberry. And, I forget the other one, but there was three.
[00:14:25] I said, you know, these are on in the morning. These make more sense to me than this guy's shit. that guy's shit you can only take so much.
[00:14:34]Joe Sheehan: [00:14:34] it's tough, but like you said, you just don't pay too much attention to politics. It's hard not to certainly this year , when the second time when Obama got elected, we went out.
[00:14:44] Bless you. We went out to dinner with my friend who was in finance retired before he was 40. God bless him. And, he told my father I don't vote. And , his reasoning was beautiful. He was like, I just wait, see [00:15:00] who wins, what their policies are going to be.
[00:15:04] And I figure out how to make money with them. And I think for business people, that's kind of, it's kind of how you got to operate. If you really believe in something , there's no problem with voting, but at the end of the day, certainly in New York, the presidency. Minimally affects us as far as all the other bullshit that we deal with locally.
[00:15:22] That's my thought processes. We get some stuff like with Obama, I got tax credits because we offered things as a small business that we didn't have to. So I got tax breaks, we got some tax breaks with Trump, but then Trump also hurt businesses by eliminating the entertainment piece. Trump.
[00:15:42] Who's a business, man. What the hell did he do that for? But it happened. And then you just maneuver and operate according to the new set of rules every four to eight years. Yep.
[00:15:54]So , if you had to pick a stock now, would you.
[00:15:59]Paul Giannamore : [00:15:59] I shouldn't [00:16:00] say that I'm entirely not out of the market, but I don't own any equities. Now. I am fully looking at commodities because I expect there to be some inflationary pressure in the near future.
[00:16:11] So for example, I just, last week I just started go build a long position in natural gas and it's kind of trading at a five, six year low. and I feel like that will increase dramatically with inflationary pressure. So me , I buy some nickel, I got copper future. I'm really kind of more of a commodity guy.
[00:16:33] I've always been a commodities guy. Commodities tend to trend as opposed to bounce around like stocks do so I can a mass positions over time and commodities that I think are going to do well. I mean, earlier this year I bought, cattle futures and, corn soy, those types of things. So I'm looking at the, I'm looking at the increasing inflation trade and where I need to be for that.
[00:17:00] [00:17:00] And so short bonds, long commodities.
[00:17:04]Joe Sheehan: [00:17:04] One last question. What do you think about Bitcoin and the Bitcoin ripple?
[00:17:10]Paul Giannamore : [00:17:10] yeah, so, you know, I'm may offend somebody, your listeners, and this is just a purely personal perspective. I don't really have an opinion on what other folks do I am personally not, I don't own a single cryptocurrency. it's not that I don't think they ultimately will have their place. It's just that I really try to focus on areas that I know about. And I felt like if I bought cryptocurrency, I'd be gambling. so it's interesting to me. And I think in a lot of ways, cryptocurrency will become more and more important. But I mean, you know, I was talking to my wife about cryptocurrency last year and she's like , You ever thought about buying cryptocurrency and I'm like , there's thousands of them, which one would I buy?
[00:17:48] How would I even know the difference ? So I know a lot of folks that are really bullish on cryptocurrencies for me at the end of the day, I look back, I tend to look [00:18:00] back over long periods of history and say, what has performed? gold has always been money. Commodities are something we, as humans need, we need iron, we need copper. We need soy, we need these things. So I tend to buy these things when they're out of favor and sell them when they're, they're heavily in favor. And it's a very simple, very non-complicated process, but that's what I do. And that's, what's worked for me. I'm not a day trader sitting in there and yeah, not equities, surprisingly.
[00:18:31] Cause I worked in effectively. The equity market. I am not a stock. I'm not a big stock guy , so Joe, that's the answer to your question? Are you a crypto guy? ,
[00:18:43] Joe Sheehan: [00:18:43] I bought crypto. I got very lucky. I bought the Bitcoin ETF and I made my money back.
[00:18:50] I took 20% and. Left it to ride and it's, it's riding out pretty well. I'm not going in and dropping six figures on a stock. I'm [00:19:00] dropping money that I know if I lose it , it will not affect my life.
[00:19:04] my two biggest stocks are probably Apple that I bought at $20 and just never let it go. And Bitcoin that I took a gamble on early on and have paid off other the ones. I did the same thing with that, a loss, but I lost a couple of grand major.
[00:19:21]Ed Sheehan: [00:19:21] In my own case. I had a great brainstorm. 1992, I started putting money into these health care funds over time, as you, I'm going to say get more experienced, not get older.
[00:19:39] Everybody's getting older. I started to put it into dividend paying stocks, like Altria, Verizon, stuff like that, but still carry a bit in the healthcare , some of the money I just turned over to a money manager at Merrill Lynch.
[00:19:53]Paul Giannamore : [00:19:53] great talking to you guys as always . Thanks for having me on.
[00:19:58] Joe Sheehan: [00:19:58] So listen, once again, [00:20:00] everybody. Joey Bunz Colony Confidential. I'm here with Mr. America Ed Sheehan, we want to thank Paul Giannamore from the Potomac Group, for coming on always a great time. make sure you download and listen to the Boardroom Buzz. it is what we've covered with Paul on steroids on a regular basis.
[00:20:20] Paul Giannamore : [00:20:20] Awesome. Thanks for having me boys
[00:20:22] Joe Sheehan: [00:20:22] and enjoy the weather down there. I'm a little jealous.
[00:20:24]Ed Sheehan: [00:20:24] arite Mr. & Mrs. America and all the ships at sea Ed Sheehan for Colony Confidential, you've been listening to Paul Gianammore today. Some good advice Mr. Mr. All the ships at sea until we meet again, stay safe and God bless you.
