Look before leaping when it’s time to exit a market

Don’t be in a hurry, plan well before leaving. file photo | nmg
Don’t be in a hurry, plan well before leaving. file photo | nmg 

A possible plan to exit a market such as through an acquisition, selling of shares or going public is an integral factor for companies to have in their long-term business plan from the onset, as it facilitates easy transition of the company.

“It is an essential part in determining the risk associated with an investment or business venture but company heads will not address exit strategies from the beginning in the fear that it means planning for the failure of a company,” said Victor Otieno, Business Development Officer at Heritage Insurance Company.

“An exit strategy helps a company improve on a situation instead of offering a solution to get out of a bad one.”

Indeed, it is essential for companies to have an exit in place in the event that they are not able to meet market demand leading to losses. By doing so, the value of the business is determined and companies can even get high financial returns.

In Kenya for instance, according to a 2016 survey released by the Kenya National Bureau of Statistics (KNBS), on the micro, small and medium enterprises sector, 46 per cent of them, just one-year-old in business, exited the market.

Fifteen per cent of those that also exited were two years old while 10 per cent were three years old. Another five per cent were four years old and four per cent were five years old. Additionally, 11 per cent were six to 10 years old, four per cent were 11 to 15 years old and five per cent were over 15 years old.

“Thirty-one per cent of these companies exited the market through liquidation, 30 per cent gave to family and friends, 12 per cent sold the business, eight per cent stored the assets to the business,” reported KNBS.

“Reasons for exiting the market included: the shortage of operating funds, personal reasons, lack of customers, shortage of stock raw materials, too many competitors and legal problems/government regulations.”

Globally, mergers and acquisitions (M&A) was a popular strategy for businesses in exiting a market in 2016. According to a report released last year by banking and financial services holding company, JP Morgan Chase on the 2017 M&A global outlook, the global M&A market posted volumes of $3.9t in deals.

“Companies sought to complement organic growth with acquisitions to access new regions, products and know-how, while benefiting from the continued low cost of funding. Acquirers across the globe leveraged strategic combinations to expand both their geographic reach and innovation capabilities,” reported JP Morgan Chase.
Also, through acquisition a company will realise financial gain determined by its valuation .

An example of a company that successfully exited a market through acquisition is the multinational financial service provider, Diamond Bank.

In October last year, it announced plans to exit the West African market and focus its efforts in Nigeria alone, following currency crises in the region that turned loans sour making its prospects in the region no longer favourable.

The bank sold its units in Benin Republic, Togo and Cote d‘Ivoire to an Ivorian-based financial services company Manzi Finances SA for the sum of €61m euros.

“After 18 years of building the Diamond Bank franchise in other markets in West Africa, the time has come to fully apply our resources to Nigeria. Looking ahead, we expect the Nigerian economy to further improve during the remainder of the year and into 2018,” said Uzoma Dozie, Diamond Bank Chief Executive in a statement.

“Therefore, we plan to make more financial support available to small and medium business owners and have revamped our propositions to this segment in anticipation of this. This is fully aligned with our ethos of fueling growth across Nigeria by supporting businesses and entrepreneurship.”

Faced with facts from industry, there is a need for Kenyan companies to have a proper exit marketing strategy in order to ensure that they do not suffer a loss.

- African Laughter