Choosing an exit strategy can be a particularly difficult decision to make. Especially because it involves leaving the business you have built up and established over years of hard work. When you are considering the way out that you will take it is important that you first ask yourself a few questions that will help you to outline what type of an offer as well as the exit that would be the most attractive to you and your needs.
What will your future role in the business be?
If you are looking to liquidate your ownership in the company so you have some extra cash to play with, but are not interested in selling all of the business, then an IPO or a management buyout might be the type of exit you are looking for. With and IPO or a management buyout you will still hold and play, mostly, the same role that you hold and play in the business now.
If you are trying to retire or sell off the business so you no longer have any connections with it, then entering the M&A market might be the exit you are looking for. With this strategy you may still be involved with the business for up to 18 or 24 months after the deal is closed, after that you will no longer be tied to the business.
What are your liquidity needs?
Typically an IPO will not allow you the opportunity to sell all of your shares to the public, but will require that you hold a fair amount of those shares. This process can also take a particularly long amount of time as well thus decreasing your liquid value. Management buyouts will often also require that management holds a portion of equity to ensure they have some skin in the game and continue to work in the company’s best interest. If you need to liquidate all of your ownership, these strategies may not be the most suitable strategies for your needs.
The M&A market allows buyers and sellers to acquire and sell complete ownership of a business within a short period of time. This presents the opportunity to liquidate the entire ownership of your business for the value the buyer is willing to pay. Structuring a deal in the M&A market often involves a buyout over time where a certain percentage of cash is given up front, usually around 60 – 70%, then the rest is held in a note that is paid over the following 18 – 24 months, and the value of the note is often contingent on the success of the company during those 18 – 24 months.
What are your future expectations of the business?
If your expectations are that the business will do particularly well in the near future you may consider holding more interest in the company. If you are still motivated and excited about the company’s success, then this is another reason to hold on to as much equity as possible in order to retain the future earnings of the business.
These questions will help you determine which strategy to pursue while other questions such as “When is the Best Time to Pursue an Exit Strategy?” will help you determine the timing. It is important that you get the advise of professionals who understand the M&A markets and industries you work in when pursuing the proper exit for your company.