Why Do Only 25% of Saleable Companies Exit?

Really? Just 1 in 4?

According to Dr. Basil Peters‘ (of http://www.exits.com/blog/) observations and conversations with entrepreneurs, investors and M&A professionals, only 25% of saleable companies actually exit. In other words only about 1 in 4 of the businesses that could be sold actually end up successfully exiting. This post is about one of these truths: 75% of the time when a company could have been successfully sold, a successful exit did not happen (or at least an exit where the investors ended up with a smile on their face!).

Why do so few companies that could be sold actually exit successfully?

Here are some of the main reasons companies end up failing to successfully exit:

1.    The Exit Team Failed to Execute

In a depressing number of cases, the board of a company will decide that they would like to exit but the team they assemble will fail to execute.  There are two primary reasons this happens:

– The company wasn’t actually saleable (at that time), or

– The team that was assembled didn’t have the skills and experience to successfully execute the exit.

2.    Boards Don’t Realize the Company is Saleable

It surprising to see how often a BOD fails to see that a company is approaching, or has even passed, a saleable stage of development.

–  Very few boards have even one member who has been closely involved with more than a few exits.

–  Many of ‘the rules’ about M&A exits have changed dramatically in the last ten years. Very few entrepreneurs, directors or investors appreciate how much this part of the economy has changed. Experiences from a decade ago can often lead to entirely wrong conclusions.

These factors often lead boards to develop strategies to:

–  delay starting the exit process,
–  accept additional financing because they believe the company needs to scale before exiting, or
–  accept licensing or partnership offers because they feel it is a bird in the hand.

3.    The Board was Waiting for an Unsolicited Offer

Sometimes, boards believe the right exit strategy is simply to wait for an unsolicited offer.  This almost always ensures an exit valuation significantly below market. But worse, this strategy also dramatically reduces the likelihood of an exit altogether.

4.    Riding it Over the Top

“Riding it over the top” is an increasingly common way to fail to exit. This talk also describes why exit timing is so critical and why missing the best time to exit doesn’t just mean exiting later and probably for less money. It very often means not exiting at all.

How to Improve the Probabilities of a Successful Exit

–    Education – Read all the good information you can find, and talk to as many knowledgeable people as you can get in front of. If you have the opportunity, join a CEO peer group

–    An exit strategy – Every business should have an Exit Strategy This one best practice alone will dramatically increase your probabilities of a successful exit.

This post is heavily based on an excellent talk by Dr. Basil Peters of http://www.exits.com/blog/. He is also the author of  a book EARLY EXITS.

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About smudan

Coach to CEO's and Business Owners with an end game or transition in mind while simultaneously building the equity value of their enterprise and creating a better life/work balance.

One comment

  1. Pingback: 6 of MyTop Posts « Suki Mudan

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