16/01/2015

By Chris Cairns, Partner, Alliotts

For a business at any stage of growth, planning an exit strategy is vital even if you are thinking it will be some time away.

Companies in the technology sector typically have a much shorter timeline to exit than almost any other sector. This means that right from the time that you start your business you need to be thinking about your exit plan and ensuring that your structure, investment strategy and product, match that plan. I meet so many business owners who have never really thought about the exit strategy for their business and certainly not planned for one. However, if you want maximum return for all your hard work, you must plan accordingly. Here are the some of the key avenues for exit that technology businesses typically use.

Acquisition
This is the most popular exit strategy for businesses in the technology sector, and there have been many examples recently of tech businesses with relatively few tangible assets being sold for high value sums simply on the basis of their IP profile. If you have investors in your company, they will often have invested on the assumption that your business will eventually be acquired by another business and their investment realised. If you are thinking of selling, it is vital to make sure your business is structured to make it an attractive prospect for a potential buyer.

Merger
If you think that a merger opportunity could exist for your firm and you have found a company that would work well with yours, then that may be your exit strategy. If you’re looking to exit entirely, then it will be important that the merger partner can cover your skill set. However, if you want to keep some involvement in the business, a merger can be a good way of increasing the overall value of the part of the merged business that you bring to it. Think about what your business is worth, not just on its own but as part of a merged business, and make sure that you do not undervalue what you have.

Stock market flotation
This is potentially a very lucrative exit route and has made a lot of money for tech firms in the past. Shares are issued which are tradable on the stock market, and if the float is successful the business owner can stand to gain a small fortune. However, if you are planning a stock market flotation, there are strict regulations that you must follow and also significant costs involved in this type of exit strategy. As well as that, success is by no means assured. You must make sure that you have advisors who can give you both the technical advice, which is a pre-requisite, plus also plenty of strategic advice.

Shutting up shop
Some business owners decide to just “shut up shop”. There is no obligation to hand the business on or sell it on. In this scenario, your assets will need to be disposed of, creditors paid, and any remaining funds split between shareholders.

Whichever option you choose, make sure you have good advice from a financial expert who will help you.

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