Global Business Exit Strategies

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An arial view of Tokyo, Japan
An arial view of Tokyo, Japan (Image: flashfilm/Photodisc/Getty Images)

Business is increasingly becoming global. A growing number of companies are operating across national borders. Firms investing abroad need to always be able to cash-in their foreign investments in case things go wrong or they need money to invest elsewhere. Here is where global business exit strategies come into play. These strategies offer different ways for companies to sell their foreign subsidiaries at the highest possible price.

Milking Cash Flows

If no time constraints exist for exiting the businees, firm managers can consider the strategy of increasing free cash flows and milking them. The firm can increase prices for its products, and so raise its profits from the business. As it is an exit strategy, the possible loss of market share as a result of higher prices may be acceptable.

Mergers and Acquisitions

Mergers and acquisitions (M&A) is a good way to exit a foreign business. A foreign subsidiary can be merged or be sold to another company. The primary factor here is valuation--how much is the subsidiary worth to potential buyers. Mergers and acquisitions, however, is not a good exit strategy at times of economic uncertainty when firms hoard cash.

IPOs

Initial public offering (IPO) refers to the flotation of a subsidiary's shares on an organized stock exchange, and the sale (or placement) of its shares with a wide investment public. A successful IPO can bring higher proceeds to the selling company than mergers and acquisitions. However, IPOs can also be risky, as the stock market can be volatile.

Management or Employee Buyouts

Management and employee buyouts refer to a global business exit strategy in which the business is being sold to the managers and/or employees of the business. When managers and employees use borrowed money to finance their acquisition of the company, this is called a leveraged buyout (LBO).

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