Exit and Growth Strategies for Middle Market Businesses

Buying – A Legitimate Exit Strategy

By Eduardo Berdegué | Jul 14, 2011

Although it may sound contradictory, expanding through acquisitions may prove a sound phased exit strategy for some.

There are companies whose size makes them too large for individual, life-style investors and too small for financial or strategic investors. In those cases, growing through acquisition as a means to achieve critical mass may be a good first step toward positioning the company for a future sale.

A number of issues will need to be addressed as one considers this option. From the buying company’s standpoint things to look for will include:

  • the stability of cash flows
  • the existence of a loyal, experienced, and flexible second layer of management
  • a robust and scalable IT system in place
  • a realistic business plan, among other important aspects.

Things to look for in the target company will include a motivated seller:

  • committed to a smooth transition
  • a business model and a corporate culture that will complement the buyer’s
  • a healthy balance sheet
  • strong customer and vendor relations

Preparation will be key. There are a number of steps that need to be taken even before approaching potential targets. There are many more that will follow once the execution process begins. And yet, more as negotiations lead to due diligence and a successful closing.

Exit StrategySo, for some of those business owners thinking about selling in the next few years, buying may be a good first step in that direction.  If you have any questions or comments about using acquisitions as an exit strategy, post a comment below and I’ll be happy to respond.

Read about Business Exit Strategy Planning.

Posted by Eduardo Berdegué.

2 Responses to “Buying – A Legitimate Exit Strategy”

  1. Thank you for your good analysis.
    I am willing to tell you that you have mentioned all internal factors (Strength & weakness). What are the external factors (opportunities & treats)?


  2. Eduardo Berdegue says:

    Your observation is valid. The external factors to consider will be mostly the same whether you are a seller or a buyer. In both cases you want demand for your product/service to exist without visible threats regulatory, technological, other. More importantly, you want to make sure that the opportunities for growth are real and attainable. Thanks.

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