Exit Planning, Solutions & Management (EPSM)
Types of Business EXIT Strategies
A business exit strategy is a complex activity that can be designed through different financial vehicles and contractual engagements.
There is no similar exit formula suitable for every type of company.
The starting point stands with an exit model that needs to be adjusted and planned according to the business domain, financial numbers, market situation and many other factors to be taken into consideration.
Through the years, via our investment division, we met company owners who seek an investment under a partial or complete exit strategy. It is important for every company owner to start with the preliminary understanding of exit types before they request the submission of any type of proposal for investment.
There are 5 exit strategy models on the market:
1. Private Equity Fund – This exit strategy can be established through a private equity fund, private investors, investment group or any other similar financial entity.
The process with a private equity firm is more organized and can take part in the stages of business development by bringing it to successful results and then investing the agreed funding amount in the business while receiving ownership shares in return, most of the time in a majority structure, but it depends on the case.
This Model is the leading and most promising one as it brings some benefits:
In the development process, the business becomes more efficient and successful with the involvement of an expert team of professionals from the private equity fund that has capabilities and experience in similar transactions.
At the same time, a Private equity fund joins the shareholdings of the company, the company value is rising as a stamp of a remarkable investment option. Private equity funds are mostly choosing to invest in promising companies.
Exit strategy – just sit back and relax. From this point on the private equity fund is a part of the company, they will do all the required work, based on their vast investment networks and investment partners.
2. Merger & Acquisition (M&A) – Merging with a similar company, or being bought by a larger company. A merger or acquisition indicates that the business owner sells his controlling interest in the business to the buying company. The original owner may still be involved in the day-to-day operations according to the terms that are decided during the merger or acquisition process.
3. Yield Business exit – The most suitable option for business activities which function to maximize the profit of the owner without any clear plan for future growth or expansion. The owner is willing to keep the company ownership, but willing to Exit its operational management.
Taking a professional O&M company (Operational & Management) with a financial and investment expertise to operate the entire activity while keeping the operational costs and expenses at a minimum and channeling all the profits to the owner until the future of the business will be determined by its owner – to be sold or dissolved.
4. Initial Public Offering (IPO) – The Initial Public Offering (IPO) is a way to sell shares of stock of your privately owned business to the general public. By selling the company's shares to the general public and encouraging them to buy those shares, you'll put large amounts of cash into the business within a short time.
By giving up part of your shares, or giving them up entirely, you will eventually exit the business.
This model is suitable only for large companies
5. Sell to a friendly individual – This is not an M&A since it is not combining two entities. It is but a basic sale process of your business to another entity, allowing you to cash-out and get ready to have some fun all over again in new business activities. The ideal buyer is someone who has more skill and is more interested in the operational side of the business and can scale it.
6. Liquidation and close – A business is never developed with the intention to be liquidated someday, but even lifetime entrepreneurs can decide that enough is enough. The liquidation process is something that happens all the time throughout the business world.
Businesses that are struggling financially, often choose to liquidate their assets, while prices are set lower than market value to ensure a quicker sale. Liquidation proceedings are first used to repay all creditors, and whatever is left is divided among shareholders.