With almost 50% of business owners having no form of exit strategy in place, investors should insist on having a plan. They can come in all different forms, all depending on the individual situation. It can be helpful to consider your options, but what are some examples of exit strategies?
Merging Businesses
Mergers are where two businesses combine to make one. They can make a business’s value rise, making it a popular selection for investors. For you to go through with a merger, as an investor you still need to be a part of the company.
With mergers, you will be a manager or owner of the new combined business. However, for investors who want to cut ties with their investment, this solution is not the best option for you.
Acquisition From Another Company
Simply, acquisitions are where companies are bought by another business. When it comes to exit strategies, an acquisition will have you give up ownership of your company to the business that has acquired yours. There can be positives, such as being able to negotiate a price on your terms.
For competitors, there may be room to ask for a higher price, being able to sell for more than the actual worth of your business. However, this strategy isn’t for everyone, as some investors may not be ready to let go of their investment.
You may have heard of both hostile and friendly acquisitions. Hostile acquisitions are where you do not agree on the terms, so the acquiring business will purchase a stake to complete the acquisition. Friendly acquisitions are when temps are agreed upon.
Initial Public Offer
Initial public offers or IPO’s are when you sell a portion of your business to the public. This is in the form of shares. For investors, there are a lot of benefits to this option, as it will boost your access to liquidity if you are looking for returns or refunds earlier than anticipated.
This option also allows you the opportunity of buying out other companies that also are privately held and trading, and have reached a financial roadblock.
When it comes to IPO’s, public businesses are usually larger, often going through a high-growth period. This allows the business to secure more funds to help pay off any debt.
This option may not be suitable for small businesses, due to the financial and time restraints that an IPO costs. For a fast and easy exit strategy, this may not be the best bet.
Considering Private Offerings
To raise funds, conducting a private offering of your shares to a group of investors can be a good option. They are a cheaper option and take a lot less time due to the lesser need of underwriters or brokers. You have the choice of investors that you want to select, maybe people who have similar goals and interests. The investors that you choose to privately offer to could be people that would be able to add to the company’s management.