Your Exit Strategy – Exploring Your Options
Your business is up-and-running smoothly for a number of years. You have more than healthy financials and processes all in place. This perfect scenario often involves considerations of an exit strategy.
There are several ways in which a particular business can exit. Each one depends on how the venture is going to be running at the time such a decision is to be made. We go through some of the common ways that result in a favourable exit.
SELL THE BUSINESS THROUGH ACQUISITION
This is probably the first thing at comes to mind when you consider an exit strategy. You work hard (and smart) to build a company that another entity acquires. At this point, you usually get the option to retain company equity so that you can still earn dividends. Conversely, you can also decide to cede all control to the acquirer if this is part of the agreement. Think Microsoft’s USD 26.2 Billion acquisition of LinkedIn in 2016.
MERGING WITH ANOTHER COMPANY
Very often, two or more businesses find strength in their collective expertise (or client base). Their combined efforts far surpass their propensity to succeed independently. Mergers usually help companies to increase productivity and reduce costs. If you want to maintain some (minimal) form of participation in the company, negotiation could entail an agreement where the party that has merged stays on in an advisory role.
THROUGH A BUYOUT
This is usually applicable when you have other parties such as partners that hold shares in the company. At the point of a buyout – be it internally among partners or externally among new shareholders – a detailed valuation of the company will be necessary to come up with an agreeable figure.
This is often perceived as the greatest benchmark in terms of how a business has evolved and reached maturity. Initial Public Offerings have been creating much buzz over the last few years. It involves (as the name suggests) a private company offering stock to the public. Prestige aside, the process requires cautious navigation due to regulations as well as the sheer magnitude of the process. You should be aware that the chance for an IPO is extremely low, annual revenue has to be in the tens of millions before you consider this an exit option.
Deciding on how your company is going to exit during the planning stages is all about how far and fast you would like to scale the business. What should always be kept in mind is that such strategies do pivot during the course of the business, also doubling up as a compass for the particular company to keep as a goal it is working towards.
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