First time entrepreneurs are notorious for being overprotective of their “baby”. It is difficult to imagine not being the CEO of my aspiring business at some point during its life span. It’s my idea, my money, my risk, my time, and my efforts, but “you do not have any control over when your company will exit” (MaRS Magazine). An exit strategy is highly recommended because it is appealing to investors and gives the business options in both positive and negative situations.
There are several exit strategies and depending on the selection, a company will alter day-to-day operations in order fulfill that tactic. Exit strategies include an initial public offering, acquisition by another business, sell to a new investor, merge with another company, buyout existing shareholders, franchise an idea or product, liquidate, arrange for a family inheritance, or establish an employee stock ownership plan.
Two strategies that are similar and most often grouped together are mergers and acquisitions. The biggest difference comes down to the change in leadership. Companies that experience restructuring follow the merger exit strategy, whereas, little or no change in corporate leadership implies an acquisition. For example, Google bought YouTube and added value to their search pages by integrating videos. In this case, Google implemented an acquisition of YouTube since they added the video platform to the already established website (no change in leadership). YouTube on the other hand, merged with Google and was forced to cope with the rearrangements.
The goal in merging two businesses is to generate more value. “Reasons an outside company might seek to merge with another company range from allowing them to break into a new market, to giving them a competitive edge, and removing you as a competitor from the current market” (Landau, Candice. “Planning for the Future: Your Exit Strategy”). Be aware that a specific market niche can also harm a business because buyers may not be interested or have little to no knowledge in that unique market.
In conclusion, if a company is interested in merging, it is critical to be appealing to competitors for maximum buyout. The CEO and employees must be willing to accept a change in leadership. In some cases, the CEO has the option cut all ties with the company or add on as a board member or employee. According to MaRS Magazine, merger and partnership (M&P) has become fairly popular. “Partners can provide your company with a cash infusion in exchange for a “look-see” into your business. Once you scale the business and become strategic to their company, one of these partners might put an offer on the table” (MaRS Magazine). Throughout the ENT 650 course, it has become obvious to always be up to date with income statements. Entrepreneurs will feel more secure with current, accurate numbers and an exit strategy.
Elmerraji, Jonas. Investopedia: “The Merger – What To Do When Companies Converge”. Web. 25 September 2016. http://www.investopedia.com/articles/basics/06/themerger.asp
Landau, Candice. BPlans: “Planning for the Future: Your Exit Strategy”. Web. 25 September 2016. http://articles.bplans.com/types-of-exit-strategies/
MaRS Magazine: “Exit strategy planning: IPOs, mergers and acquisitions and licensing”. 6 December 2013. Web. 25 September 2016.
Richards, Daniel. “Writing a Business Plan – Planning Your Exit Strategy”. 11 July 2016. Web. 25 September 2016. https://www.thebalance.com/writing-a-business-plan-planning-your-exit-strategy-1200841