28A – Your Exit Strategy

1. Identify the exit strategy you plan to make.

The exit strategy I plan to make is the acquisition, by finding another business that would like to purchase mine and selling it to them. This generally means being bought by a larger company and is a win-win situation as a more efficient and quicker way to grow rather than creating new products organically. In an acquisition, I can negotiate the price as the owner and founder of the venture, and public markets value me relative to the industry. By choosing the right acquirer, the value gained can far exceed and outweigh what would be reasonable, based on my income. However, the right company needs to be chosen based on strategic fit. This can be determined by asking the question, “Which acquirer can buy you to expand into a new market, or offer a new product to their existing customers?” As an exit strategy, acquisition can result in incorporating assets and goodwill into the business for sale, maximizing the return to the owner. The acquisition is also known as the merger and acquisition, (M&A) when bordering companies have complementary skills. By handing the company or business idea off to a larger player in the market who sees its merit and complementary nature can be beneficial as a business exit. An acquisition or merger is an appropriate approach for businesses of all sizes, including startups. If the strategic alignment is done correctly, the company can be sold for more than it is worth. If multiple companies are interested in the product or concept, then the price can be raised further or start a bidding war. By being acquired or merging with another company, the business can break into a new market, receive a competitive edge, or develop a stronger built-in customer base. As the founder and owner of my idea, I intend to sell my controlling interest in the business to the buying company, due to the fact that I can still be involved in day-to-day operations according to the terms that are decided during the merging or acquisition process. However, the business must go to a suitable acquirer with critical capabilities.

2. Why have you selected this particular exit strategy?

I selected this particular exit strategy because through acquisition, two companies merge to create a more integrated whole. The main benefits of a merger and acquisition exit strategy occurs when the buyer has an immediate need for the product or service, multiple buyers complete and bid against one another which results in increasing the value of the business, and when selling to competitors, it is more likely to negotiate a higher price than if the business is sold to a third party. While creating a successful small business concept or idea requires developing short-term goals, as the owner, I should also have a long-term exit strategy. Acquisition as an exit strategy can potentially result in a high valuation of a company that results in a high sale price. This exit strategy is also preferable over selling to a company or friendly buyer, because when the acquisition is by a competitor, the owner can focus on negotiating the sale price as high as possible. However, exiting the market through acquisition has disadvantages, such as restructuring and a loss of identity. The company that purchase the business may drastically restructure the newly acquired business, adversely affecting the welfare of the employees at the company that is acquired. As a part of the restructuring process, companies can also lose their identity. The purchasing company can decide to completely absorb the acquired company and dispose of its previous name and other features that made it unique. Other exit strategies, such as giving a company to a family member or selling to a friendly buyer enable the company to exist in roughly the same form instead of letting it be cannibalized by another business. However, acquisition allows the owner to continue to work as administrators or advisors after the acquisition occurs. This is beneficial if the owner desires continued involvement but can also be a disadvantage if the managers want a clean split without attachment to the original business or venture concept. Acquisition also ensures that employees are taken care of in the long run, due to the original owner’s involvement in the new company’s tasks.

3. How do you think your exit strategy has influenced the other decisions you've made in your concept?

I think my exit strategy has influenced the other decisions I have made in my concept as a result of current trends in the marketplace, its strategic fit, and the search process along the way. Trends in the marketplace have a large impact on whether a company is an attractive contender for acquisition. A majority of acquisitions are driven by the market, when trends are positive, it’s good for acquisitions because more money is available. Exits can also occur when the market is not viable, especially in the pharmaceutical markets. Large companies are always looking for growth opportunities, so there is no shortage of opportunities for acquisition. Acquisition success is also heavily reliant upon strategic fit in the market. As part of my exit strategy, I will make my company or business highly attractive to potential candidates but keep my options open. While strategic buyers, or those who have a working knowledge of my type of business or those in the industry, appear to be ideal and could offer the most lucrative deal if I have the critical capabilities needed by the acquirer, I won’t rule out private equity buyers due to the fact that they are mostly concerned with cash flow and will use debt financing to pay for part of the acquisition cost. During the process or journey of my exit strategy plan, I will ask for advice and directions along the way because no one knows everything. By building and developing relationships with other chief executive officers (CEO) or management teams, it may bring me in contact with future buyers. Third-party opinions, especially relative to market positions, are important. By setting a strategy from an independent view is helpful and provides insides while removing much of the emotion. CEOs can be sensitive about how they stack up to the competition, but an honest appraisal, where an advisor can detail what the company is good at and what the competition might be doing better, is necessary. By understanding the business thoroughly and keeping the focus on creating value through great management, a sustainable market position and margins, recurring cash flows, and diversified revenues, I will be positioned for a successful and profitable exit in the market.