There are eight common exit strategies, but ultimately the one you choose will depend on your own financial, personal and business goals. We cover some of the pros and cons for each business exit strategy below.
8 types of exit strategies
- Merger and acquisition exit strategy (M&A deals)
- Selling your stake to a partner or investor
- Family succession
- Management and employee buyouts (MBO)
- Initial Public Offering (IPO)
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1. M&A dealsA merger or acquisition is a strong exit plan option for any company with their business for sale, and a particularly attractive option for startups and entrepreneurs. You’ll be selling your business to another company, who may want to increase their geographic footprint, eliminate competition, or acquire your talent, infrastructure or product.
- This is one of the strongest exit strategies for business owners, as they can maintain control over price negotiations and set their own terms. If you are selling to a competitor or entertaining multiple bids, you may be able to drive the price up even further.
M&A processes can be time-consuming and costly, and regularly fail. Use free preparation and project management tools in Ansarada Deals™ to streamline processes and ensure a high valuation.
2. Selling your stake to a partner or investorAs long as you are not the sole business owner, you can sell your stake to a partner or venture capital investor while the business runs as usual. The term ‘friendly buyer’ is often used in this type of exit strategy, as it’s likely that you would sell your stake to someone known and trusted.
- The company can continue to run with minimal disruption to business as usual, keeping revenue streams steady.
- It’s likely this person already has a vested interest in the business and is committed to its success in the long term.
- Finding a buyer or investor for your share of the company can be difficult.
- The sale may be less objective and therefore not as lucrative; you may lower the asking price if the buyer is someone close to you.
3. Family successionThe family succession exit (or legacy exit) is the idea of keeping a profitable business ‘in the family’. It’s worth noting that business exit planning for a family succession is no less important than any other type of exit. This is an appealing option for those who want to pass down their company legacy to a child or family member, but it’s important to ensure that the person is up for the job.
- As a family member, it’s likely this person will have an intimate knowledge of the business and a good understanding of how it is run.
- This person can be prepared for transitioning into a leadership role over many years.
- With business in the family, you retain close connections to the business, possibly choosing to remain in an advisory or consulting capacity.
- The idea of running a multiple generation family business might seem attractive, but there may not be someone who is capable of taking on the role.
- Blurring professional and personal lines could lead to unnecessary financial or emotional stress for the family.
4. AcquihiresAcquihires is a business exit strategy where a company is bought solely to acquire its talent. This type of acquisition can be very beneficial to skilled employees, as you can be confident they will be well looked after once the business itself is sold.
- If someone is actively trying to acquire your talent, you’ll be able to negotiate stronger terms of the acquisition.
- Your employees will enjoy a more certain and successful future.
- You may struggle to find a buyer who is interested in an acquihire.
- As with typical acquisitions, this can be a challenging and costly process.
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5. Management and employee buyoutsIn management buyouts, those already working within the business are able to transition into more senior roles to fill the gap in leadership. As the management team is already familiar with your business, they should be well equipped to manage the company.
- You’ll be able to trust that the business is being run by someone experienced in the organization.
- The handover process is likely to be more straightforward than it would be in a sale to a third party.
- There may not be a manager or employee who is interested or ready to step in.
- Significant changes in management could have a negative flow-on effect on the business.
6. Initial Public Offering (IPO)In an IPO exit, you are taking your business to the public and selling shares as stock to shareholders. While an IPO has the potential to be extremely lucrative, it is also extremely challenging. While private investors could see huge potential in your business, the wider industry may not. High regulatory costs and added pressure and scrutiny from shareholders are often enough to make many opt to stay private.
- The potential to earn a substantial profit, more so than any other exit strategy.
- Expect intense and ongoing scrutiny from stockholders, regulatory bodies and the public.
- Additional requirements of an IPO include mandatory progress and performance reporting.
- IPO due diligence is difficult, costly and labour-intensive. Use Ansarada Deals™ to get complete oversight and control, and avoid the risks inherent in this process.
7. LiquidationThis is a common exit strategy for failing businesses. Liquidation is one of the most final exit strategies, whereby business is closed down and all assets sold off. Any cash earned must go toward paying off debts and shareholders (if there are any).
- If it’s a firm end you’re seeking, this is it. The business is well and truly gone after liquidation.
- This method can be simpler and faster to execute than other methods, such as acquisition.
- Liquidation is not likely to be a high-value exit.
- You could be breaking ties between you and employees, partners and customers.
8. BankruptcyOf all the types of exit strategies, this last one doesn’t entail much of a business plan. Filing for bankruptcy will result in assets seized and will impact your credit, but it will also relieve you of financial debts.
- You’ll be unburdened of the debts and responsibilities of your business.
- You may struggle to borrow credit in future business endeavours.