The Danger of 

Market-timing a Sale.

By John Warrillow

Special to Globe and Mail Update  Wednesday, Nov. 30, 2011

The other day I was speaking with a successful chief executive officer in his fifties who runs a heating and air conditioning company generating $8-million in revenue and more than $1-million in profit before tax.

Even though he was tired and nearing burnout, he was planning to wait another five to seven years before selling his business because he "wanted to sell at the peak of the next economic cycle."

On the surface, his rationale seems to make sense.

If you speak with mergers and acquisitions professionals, they'll tell you that an economic cycle can affect valuations by up to "two turns," which means that a business selling for five times earnings at the peak of an economic cycle may go for as low as three times earnings at a low point in the economy.

The problem is, when you sell your business, you have to do something with the money you receive, which usually means buying into another asset class that is being affected by the same economy.

Let's say, for example, that you had a business generating $100,000 in pre-tax profit in an industry that trades between three times and five times earnings, depending on the point in the economic cycle.

Furthermore, let's imagine you sat on the sidelines until the economy reached an absolute peak and sold your business for $500,000 (five times your pre-tax profit) in June, 2008.

You took your $500,000 and bought into a TSX index fund when it was trading above 15,000. By Nov. 20 of the same year - after the TSX had dropped to 7,724 - you'd be left with about half of your money.

Even though you cleverly waited until the economic peak, by Nov. 20, 2008, you would have effectively sold your business for 2.5 times earnings.

The inverse is also true. Let's say you waited "too long" and sold the same business in November, 2008.

Because you were at the lowest possible point in the economic cycle, you only got three times earnings: $300,000. Notice that's 20 per cent more than if you'd sold at the peak and bought a TSX index fund at the top of the market.

Just like when you sell your house in a good real estate market, unless you're downsizing, you usually buy into an equally frothy market, which is why timing the sale of your business on external economic cycles is usually a waste of energy.

Instead, I'd recommend timing the sale of your business when internal economic factors are all pointing in the right direction: employees are happy, revenue and profits are on an upward trend, and there is still lots of market share for an acquirer to capture.

When internal economic factors are pointing up, you'll fetch a price at the top end of what the market is paying for businesses like yours right now, which means that - for good or bad - you get to use your new-found cash and buy into the same economic market you're selling out of.

For questions regarding IAG and how we can help you sell your business or Purchase a business, please contact us at 877-497-0693 or email us at Please visit the IAG website at for more information.


IAG will be attending the ACG InterGrowth® Conference

in Dallas, Texas on April 25- 27, 2012!!!


The Association for Corporate Growth (ACG) InterGrowth Conference brings together the leading middle-market M&A and corporate development professionals under one roof for three days of intense networking and powerful content.

InterGrowth is where deals are made and 2012 will be no exception. The Gaylord Texan offers the perfect venue for you to connect and do business in a highly productive setting. More than 90% of InterGrowth attendees report they make a critical business connection from attending.

InterGrowth features capital providers with $102 billion in total available investment capital.

IAG is proud to be members of ACG and we will be presenting our clients businesses to Private Equity and buyers set aside for this conference.

Founded in 1954, ACG is a global organization with 56 chapters and over 14,000 members. Doing business is at the heart of the ACG membership experience. Chapters in the U.S., Canada, Europe and Asia bring dealmakers together to help them achieve their business and professional goals.

ACG InterGrowth Conference - ACG's Signature Event

ACG InterGrowth provides attendees with access to cutting-edge thinking from a wide range of speakers, and offers unparalleled opportunities for deal making and professional development. Members and guests take networking advantage of access to a global audience - the conference brings together approximately 2,000 business leaders involved in corporate growth. This experience showcases the best that ACG has to offer:

· Networking with talented and dynamic executives in five-star surroundings

· Opportunities to publicly describe companies for sale or purchase through the ACG Capital Connection

· ACG DealSource

· Education opportunities through speakers and seminars designed to meet a host of professional interests within the ACG community

For more information on ACG or the conference please visit WWW.ACG.ORG

Or the link from our website at WWW.INTLAG.COM



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IAG, LLC is a business intermediary consulting firm, facilitating the buying and selling of businesses. For more than 25 years the Management Team has been a leader in the industry and has helped the owners of privately-held companies "cash in" on all their hard work and get the best payoff possible.

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