Is it a right time to launch the search full time or should I wait?

August 02, 2021

by a searcher from University of Cincinnati - Carl H. Lindner College of Business in Bear, DE, USA

What are your thoughts on whether it is the right time to start the search full time or it is wise to wait to quit the job until things get back to normal? My main concern is that how to value the businesses in this period of abnormality, i.e. some businesses might have done much better in 2020 than they would have done in a regular time. So, the asking price would be based on 2020 EBITA multiples, but that EBITA is not sustainable in long run. On the other hand, some businesses might have done very poorly in 2020, and available one discount but how do we know whether these businesses will be able to recover post covid, esp. when there are still concerns of lockdown, etc. due to delta variant?

Any insight in this regard based on your observation from your search would be really helpful and much appreciated.

P.S.: I wish I could continue to search while keeping my day job, but the nature of my job doesn't allow enough time to make any significant progress on the search side, just by doing it on the evenings and weekends.

Reply by a searcher
from University of Texas at Austin in Lexington, KY, USA

I agree with Mark -- the right time is when you are financially ready. You can always make excuses on to why not jump into a Search full-time so you just have to know when it's right for you. Not an easy decision but IMO the sooner the better (as long as you are financially stable for the search period).

As far a valuing the company, you should ask for 3+ years of financials. And with the unknown of 2020, I'd try to get more so you can see if there is any meaningful insights from###-###-#### compared to###-###-#### Also, researching the industry in depth and speaking with other industry players, you will be able to get a good feeling on the impact of COVID. As well as discussions with the Seller. Now what years to use when trying to value the company -- use whatever makes the best case for you in getting the cheapest price!

Also, if it did poorly in 2020, then I'd take extra precautions/discounts as we are not sure when things will fully get back to normal....

Reply by a searcher
from The University of Chicago in 85 Broad St, New York, NY 10004, USA

I think the "right time" is purely dependent on your own circumstances rather than the market conditions. There are challenges in every market. During a recession, the fear is whether the economy will continue getting worse and companies holding out, waiting for a rebound to get better valutions. In economic booms, valuations tend to increase, making it more difficult for a value-oriented searcher. And with COVID, the challenge is normalizing any TTM declines or run-ups. While you may submit an offer that is based on TTM performance, you should also look at the same valuation in terms of go-forward multiples (2021E or 2022E) and projected returns.

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