February was a major month in the world of mergers & acquisitions, between the sale of Heinz to Warren Buffet’s Berkshire Hathaway and the merger announced between American Airlines and US Airways. Combined with reports that financial executives are planning to dip into their cash reserves in the first quarter and that many major players have significant cash reserves at this time, all indications are positive that 2013 will see a turnaround in the mergers & acquisitions market.
That’s good news for entrepreneurs looking to develop an exit strategy, since mergers & acquisitions often offer a significant return on investment for company founders. However, successful M&A transactions don’t happen by accident—they require months, if not years, of planning and hard work on the part of the founder and upper management. So, developing an exit strategy early is important.
Regardless of industry, there are several tips that companies considering a merger or acquisition should keep in mind to maximize salability and profitability. To that end, follow the three pointers below to ensure a smooth and successful exit from your venture.
Tip #1: Be The Best At One Thing
The tactic that will net the most during a merger or acquisition is simply to be the best at one thing in one industry—something that larger companies just can’t seem to replicate. Further, according to John Warrillow, author of the book Built to Sell, it needs to be something customers care about deeply. The bottom line is that acquirers buy only what is in demand but not easily replicated.
Tip #2: Be Prepared for Due Diligence
Nothing turns a potential purchaser off more than undue risk. Minimizing that risk means ensuring the company has all of its paperwork in order. During the due diligence process a potential acquirer will want to see regulatory compliance, proof of ownership of intellectual property and the company’s financial history.
Tip #3: Time It Right
Founders often wait too long to sell, which can lead to a significantly lower sale price than could have been achieved otherwise. Waiting too long can also prevent the granting of a full exit. Entrepreneurs who “ride it over the top” often find their company is no longer a desirable acquisition. Choosing the optimal time to sell is difficult, but essential.
With the market primed and ready, it’s looking like it will be a good year for mergers and acquisitions. Those who haven’t considered their exit strategy before should think seriously about considering a sale—before the opportunity diminishes.