Creating a successful small business requires creating and realizing short-term goals, but business owners should also have a long-term exit strategy. Acquisitions occur when a business buys a different business, and many small-business owners may have the exit strategy of selling their companies to larger competitors in an acquisition at some point in the future. This strategy has both potential advantages and disadvantages.
Company Value
An advantage of pursuing an acquisition as an exit strategy is that it can potentially result in a high valuation of a company that results in a high sale price. For example, if a new software start-up impresses several large competitors and then announces that it is open to being acquired, the competitors may engage in a bidding war to acquire the company, which could push up the sale price beyond what the owners might be able to get by selling it to a friend or liquidating the company's assets.
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Personal Relationships
Acquisition by competitor can be preferable to attempting to sell a company to a friendly buyer, because acquisitions allow owners to focus on negotiating the sale price as high as possible. It can be difficult to negotiate with a friendly party, because both sides may feel obligated to give the other a "good deal," which can result in undervaluing or overvaluing a company. In addition, owners may have an ongoing relationship with friendly buyers, which could be affected by business dealings. Acquisition by a competitor allows owners to keep business and personal issues separate.
Restructuring
One of the main disadvantages of exiting a market via acquisition is the purchasing company may dramatically restructure the acquired business. For example, a corporation that buys out a small competitor might fire the managers at the small company and replace them with workers who are experienced with the corporation's policies. In other words, acquisition can adversely affect the welfare of the employees at the company that is acquired.
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Loss of Identity
As a part of the restructuring process, companies can lose their identity. The purchasing company might decide to completely absorb the acquired company and throw away its previous name and other features that made it unique. Other exit strategies, such as giving a company to a family member or selling to a friendly buyer allow a company to continue to exist in roughly the same form instead of allowing it to be cannibalized by another business.
Attracting Buyers
Acquisition is not a dependable exit strategy because it relies entirely upon attracting buyers. If competitors are not interested a company's products and services or do not have the financial ability or desire to make an acquisition, owners may be forced to turn to a different exit strategy. Planning for different contingencies during the early stages of creating a business can help owners adapt when things do not go according to plan
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Continued Invovlment
Owners often continue to work as administrators or advisers after an acquisition occurs. This can be a good thing if the owners desire continued involvement, but it can also be a disadvantage if managers want a clean split without any strings attached.
