Entrepreneurs know all too well the daily challenges that come with starting and subsequently building a business. From securing initial funding and navigating the complexities of market research, to establishing a viable business model and attracting a customer base, the hurdles are as diverse as they are demanding. They must hold space in their heads for building a talented team, developing a compelling brand, and staying ahead of competitors all while adapting to changing market dynamics and managing often limited resources.
When putting so much time and energy into establishing and growing a business, it’s reasonable that an entrepreneur may not immediately consider the future aspect of how they will exit the venture. However, an exit strategy is a critical component of entrepreneurial planning. It provides a roadmap for the future and ensures that all of the hard work done leads to a successful and intentional outcome.
Knowing when (and how) to exit
There are a number of different exit strategies an entrepreneur can take, and each will be unique to their goals, the nature of the business, and market conditions. Going public through an IPO is a common exit strategy, listing the company’s shares on a stock exchange and allowing the public to buy and sell them. For businesses with a focus on family or internal succession, an exit strategy helps in smooth transition planning. It allows for the identification and preparation of the next generation of leaders.
M&A exits are most often favored by entrepreneurs with strategic foresight, aiming to leverage the synergies of combining with a larger entity, access new markets, or capitalize on favorable market conditions. “Mergers and acquisition are a means to achieve long-term goals and unlock the full potential of a business,” says John Goullet, an IT staffing professional and entrepreneur.
John founded his company Info Technologies, Inc. in 1994, and over the next fifteen years grew it to become one of the most prominent IT staffing firms in the country. In 2010 he successfully facilitated its merger with a competing staffing firm to form Diversant LLC, and over the next decade would continue its growth by making a number of strategic acquisitions. In 2019 it was named by Staffing Industry Analysts as one of the 25 largest staffing firms in the United States, and in 2021 it was acquired by a global provider of information technology solutions and services.
Having considerable experience in facilitating M&A transitions as an entrepreneur and successful exits that utilize these strategies, Goullet has provided his insights about mergers and acquisitions, as well as the considerations an entrepreneur should take into account when deciding to pursue them.
Mergers and acquisitions as exit strategies
Although lumped together in general business terms as M&A, mergers and acquisitions are distinct forms of consolidating companies or assets. While they don’t always result in an exit by the founding entrepreneur, they do offer an avenue through which they can realize financial gains and ensure continuity and stability for their business. “Mergers and acquisitions are nuanced strategies, each with its own unique dynamics,” said Goullet. “Mergers symbolize collaboration and equality, while acquisitions signify strategic growth and absorption.”
Mergers involve the collaborative integration of assets, technology, customer bases, and expertise from both participating companies, forming a stronger and more competitive entity. This strategic approach proves advantageous when companies possess complementary products or services, aim to enter new markets, or are pursuing synergies and cost-saving opportunities.
Acquisitions involve one company purchasing another, often with the objective of obtaining control over assets, intellectual property, customer base, or market share. The acquiring company typically extends a combination of cash, stock, or other incentives to the shareholders of the startup in question.
Within these two forms are a multitude of subcategories. An acqui-hire occurs when a company acquires another primarily for its talented workforce. Strategic acquisitions are undertaken to gain a competitive edge or expand market presence by leveraging the target company’s technology, customer base, intellectual property, or other valuable assets. Exit acquisitions involve a startup being acquired by a larger company, providing an avenue for founders and investors to exit the business and realize financial returns. This type of acquisition is often pursued when the startup has demonstrated its value and requires additional resources for scaling.
When thinking about these choices, startup founders and investors consider a number of different elements including their long-term vision, growth trajectory, funding requirements, market dynamics, and potential synergies with other enterprises. Goullet was able to deploy both of these strategies at different points in his business. Recognizing the synergistic potential of a rival company, he facilitated a merger to enable the new entity to leverage the strengths of both businesses and expand its footprint in the industry.
After completing many acquisitions himself, Goullet recognized an opportune moment for an M&A exit. This not only allowed him to secure his own financial future, but also positioned the business for continued success under the stewardship of a strategic buyer that would be able to leverage its established international reputation and client relationships. “For me, the M&A exit represented a move that would ensure the ongoing prosperity of the IT staffing firm I had worked so hard to build,” said Goullet.
Considerations to make in M&A exits
Goullet emphasizes that mergers and acquisitions are intensely complex, and entrepreneurs should always seek professional advice from lawyers, investment bankers, and other experts who can help navigate the complexities of these transactions and determine the best exit strategy for a particular business. “That isn’t to say that an entrepreneur shouldn’t conduct their own due diligence,” said Goullet. “After all, as founder and leader it was your original vision that made this potential exit possible in the first place.” These are some key questions Goullet recommends entrepreneurs consider when entertaining an M&A exit:
Are the two companies strategically aligned? In order for a merger or acquisition to be successful, it must align with the long-term strategic goals of both companies. Entrepreneurs should look individually at each company’s vision, mission, and growth plans, and assess whether the deal would facilitate the achievement on both ends.
Are they culturally aligned? Assessing the compatibility of organizational cultures between the acquiring and acquired companies is crucial. Misalignments in values, work ethic, and corporate philosophies can lead to post-acquisition challenges.
What will be the impact on employee morale and retention? The dedication of founders, entrepreneurs, and leaders is undeniably crucial, but it is the individuals comprising the company’s fabric who, through their collective efforts, have truly propelled it to success. A vital aspect of determining whether an M&A exit is the right path for your business is identifying if it is the best move for employees of both businesses.
While difficult to conceptualize when so much mental energy is being exerted towards building and growing a business, there will inevitably be a time when entrepreneurs must make their exit. Goullet asserts that it is an important part of the entrepreneurial journey to come to terms with this and remain open to when that time will be right. “I hope that in processing this information, entrepreneurs can get their wheels turning and begin to think strategically about whether an M&A exit would be right for them.”
