How to Choose an Exit Strategy
New businesses come from unique ideas… new motivations… different reasons. Some people want to solve problems or help change the world. There are so many things a budding entrepreneur has to think about when starting their business. One of which is an exit strategy, and those motivations and ideas can influence what kind of exit strategy will be chosen.There are different exit strategies that a company can turn to, and the best strategy depends on the entrepreneur’s goals for the company. So how do you choose which strategy works best for you, your business, and your investor? The following are things to consider when choosing an exit strategy:1. Consider your future role in the business.Do you want to continue managing your business? Will your team be playing the same roles before and after the exit? An Initial Public Offering (IPO) or a management buyout could be for you. Will your acquirer replace you and your team with their employees? A strategic acquisition could be your solution if ever the business would be struggling with succession-planning issues.
2. Evaluate your liquidity needs.Sometimes exit strategies are opportunities to reap the benefits of their hard work and to increase their liquidity in shorter lengths of time – like for IPOs and strategic acquisitions. But sometimes, however, businesses and investors will not know the final price until the end of an earn-out period, which can last several years – like in a management buyout.3. Think about your company’s future potential.If you do not want immediate liquidity and would rather remain part of your company’s future growth potential, then choose IPO or management buyout. An IPO allows you to keep a substantial interest in the company, as well as to time the ultimate disposition of your shares to meet your own personal needs, while a management buyout also will allow for continued participation in a company’s growth. But if you want to take out your ownership and administering of your company, you can consider acquisition.4. Appraise the market conditions.You can do this by looking into your company’s products or services, the appetite for IPOs and acquisitions among both investors and strategic buyers, and other market conditions also will have an impact on your exit strategy. Seek the advice of your private equity partner, commercial lenders, investment bankers, or other financial professionals, about trends in the marketplace.
5. Consider a dual-track approach.Marketing your company to investors requires a slightly different approach than presenting to potential strategic buyers. Investors in the public market will focus on your businesses ability to grow as a whole. On the other hand, strategic buyers may be more interested in specific parts of your company that are complementary. You can actually aim for both types of exits at the same time to capitalize on the most attractive opportunity.To sum up, wherever your company will be attractive to; may it be to the investors or buyers, don’t forget to consider the price. Consult with your investors, senior managers, your team, and even your customers to ensure you are making the right decision for everyone involved.