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.
So, 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.