To the average business owner who may be planning to sell up or limit their involvement in the day-to-day details of its operation, the need to devise an exit strategy might appear to be an unnecessary task that could delay their plans. The term might seem more applicable to some clandestine special forces group’s plan to escape from an alien shore after an illegal incursion. However, in practice, this could be a dangerous misconception. Failure to devise and follow a suitable plan could see anyone wishing to sell or merge their company gaining far less from their deals than they would have hoped.
Often, such disappointments arise because business owners believe that selling a company is no different from selling a house. Why the need for an exit strategy? Firstly, the only similarity between these two transactions is that, in each case, the seller is hoping for a good return. However, the purchase price of a home is generally based on recent sales of similar properties in the same area. The figure will fall within a relatively narrow range, allowing the buyer some room to negotiate.
By contrast, there is no market guideline or reference price for an IT company or a furniture manufacturing business. How much these could fetch will depend solely on their potential value to a given purchaser or investor. Hence, a well-planned exit strategy is essential to ensure that all the agreed terms relating to a sale or merger will be compiled to guarantee that the seller’s best interests remain paramount. The planning is crucial and requires the skills and experience of a mergers and acquisitions (M&A) specialist.
The first step will be to define some goals, beginning with a target date for completing the negotiations. In practice, it can take a year or more to conclude a favourable deal, so planning needs to begin well in advance. The next task is to calculate your required financial return. When developing your exit strategy, you must also consider the various options for the transition. Do you want to sell or merge with another business? If you’re selling, will it be to a business partner, key employee or an, as yet, unknown third party? In each case, it will be wise to seek the assistance of an M&A advisor.
Furthermore, you could find it virtually impossible to find a suitable third-party buyer or investor without professional assistance in the current climate. Consequently, if your exit strategy involves selling to or merging with another company, at the moment, your best bet will be to look beyond South Africa’s borders.
Mergers and acquisitions are not events; they are lengthy and often complex processes. Therefore, your plan must be flexible enough to allow for changes in market forces and your business during the marketing phase. Deal Leaders International is a sell-side mergers and acquisitions consultancy. The company has an enviable track record due to its extensive contacts and unique marketing approach. An experienced DLI advisor will help you compile an exit strategy that could attract multiple qualified buyers or investors even before you need to perform due diligence.