Acquisition as an Exit Strategy: Advantages and Disadvantages

All small business owners should have a long-term exit strategy that is flexible as the business grows and changes. Of course, a popular option is to plan to sell your business. However, this path has various advantages and disadvantages you should be aware of. Let’s take a closer look.

Higher Valuation

When your company is acquired by a larger one that needs your goods or services, it can result in a higher company valuation and more profits. Let’s say that a software company has a product that larger companies need. Once the word gets out that this business is for sale, this could incite a bidding war that drives up the value of the small software company. The end result of this scenario could be maximum profits. When competition for your business is involved, the amount of potential profit definitely swings in your favor.

Strictly Business

When it comes to negotiating the best price possible, selling your company to a friend can put you at a disadvantage. The personal nature of the relationship can make the seller feel pressured to give their friend a discount. In this situation, companies are often undervalued. A transaction of this nature could also harm the buyer and seller’s relationship.

In contrast, when a business is acquired by a competitor, the owner can focus on negotiating the highest price possible. It goes without saying that there are no personal dynamics involved in this buyer seller dynamic.

The Employee Factor

Depending on your relationship with your employees, an acquisition might not be the best exit strategy unless you are prepared for the negative effect it could have on your staff. Often when a larger company acquires a company, there ends up being a lot of business restructuring. That could mean your managers and other employees could be demoted or let go, or replaced by the acquiring company’s staff. If the welfare of your employees is a top concern, when deciding on a business exit strategy, acquisition situation might not be your best choice.

Loss of Identity

Do you feel that you have a lot of your identity tied up in your business? If so, be prepared that the company that acquires yours will most likely do away with the name, and your business model. It may, in fact, be unrecognizable from when you owned the company.

Further, if you desire to stay on as a consultant or administrator at your company after the acquisition, selling to a competitor may not be a good idea. There is the possibility the new owner will not want you involved in the business after the deal is closed. If this is the case, consider selling the business to a friend or family member instead. They will probably be more amenable to keeping you on as an advisor, and continuing to provide the same kind of service and quality of products you were known for.

Finding Buyers

Planning for different contingencies during the early days of starting your business will make you a more adaptable business owner. It is important to be able to pivot and change course if an exit strategy plan falls through.

While many business owners gravitate to the idea of selling their business, if you can’t find the right buyers, you will need to have another exit strategy in place. That’s why it’s so important to work with trusted business brokers who have years of experience making deals happen.


Steve Ford is Executive Vice President of Creative Business Services/CBS-Global.

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