Being an entrepreneur has its upsides and downsides. While the journey to growing a fashion brand can be very exciting, sometimes it turns around and it is apparent that the business life has come to an end.
Regardless of whether or not you plan to shut down your fashion business, it is advisable that, just as you have business growth strategies, you also have business exit strategies.
Last week, we looked at Liquidation as a Business Exit Strategy, and this week we will be looking at Acquisition.
What is an Acquisition?
An acquisition is a situation when one company purchases most or all of another company’s shares to gain control of that company. They are very popular among SMEs and large companies alike.
Acquisitions may occur with or without the target company’s approval. There are majorly 3 types of acquisition in business;
- Acquisition: This is usually friendly. Here, both companies agree to the acquisition and plan together towards it. This usually benefits both companies.
- Takeover: This is more like a hostile acquisition and it happens when the target company does not agree to the acquisition. The acquiring company actively buys over large stakes of the target company to gain controlling power of it.
- Merger: This is a very friendly acquisition that makes the two companies come together into one. This happens when both companies believe coming together will be more beneficial to everyone involved.
With a merger or acquisition business exit strategy, your fashion brand is either purchased by or merges with a company that has similar goals to yours. With acquisitions, you get to decide on and negotiate the price of the sale, and if you position your brand right, you might even get to sell it for more than it is worth.
If you choose to use acquisition as the business exit strategy for your fashion brand, you have to position it in such a way that it will be attractive or desirable to other companies. Targeting a company or group of companies you will like to sell to can help you know how to make it attractive to them.
However, in making your brand attractive to a specific company, do not go so far as to cut off other options.
Businesses buy other business for several reasons. These reasons may range from wanting to break into a new market (expansion), to giving them a competitive edge over others, building their customer base or buying out and eliminating the competition.
In selecting the right company to make your fashion brand attractive to, you should ask yourself, “Which acquirer can buy you to expand into a new market, or offer a new product to their existing customers?
For example, if your fashion brand produces jewellery, you might want to sell to a clothing brand that is looking to go into accessories. Also, as a womenswear brand, you can decide to make your brand attractive to a menswear brand, which shares the same values as you, and is looking to venture into the womenswear market.
Depending on who you sell to or merge with, acquisition can offer you the option of either still remaining involved with the company or walking away. The acquisition process can take a very long time and so, it is advisable to have another business exit strategy in place apart from an acquisition.
Advantages of Acquisition as an Exit Strategy
- You can negotiate the terms, prices, and other details of your merger or acquisition with the other company.
- If you make yourself very attractive to prospective buyers, they might pay far more than your company is worth.
- A competing business may be highly motivated to purchase your business, making for a quick sale and maximum profit.
Disadvantages of Acquisition as an Exit Strategy
- The acquisition process can be time-consuming, costly, and perhaps even unsuccessful.
- The purchaser might choose to close down your business after purchase if their motivation was to eliminate competition. This will mean the loss of jobs for your employees.
- If you organise your company to be attractive to a specific buyer, that might prevent it from being attractive to other prospective buyers.