Today more than ever, growing companies are looking at the M&A market as an attractive exit alternative to the IPO market. This strategy is being driven by strong M&A valuations, as well as higher regulatory and market hurdles in the IPO market.

Yet the decision to be acquired is far from a simple financial calculation where business owners seek out the exit strategy that will net the most liquidity. Most entrepreneurs seek a transaction that will maintain and enhance their company’s market position, complement their product line and distribution system, and generally allow their business to continue to grow.

When well executed, an M&A transaction can accelerate the growth of both acquirer and acquired company. In fact, some experts, including David Harding, a director at Bain & Co. and author of Mastering the Merger believe that it is nearly impossible to build a world-class company without acquisitions. Unfortunately, these positive outcomes are not always assured. A recent study by Bain & Co. found that only about three in every 10 large deals creates meaningful value for shareholders. In fact, half of them destroy value.

What should an entrepreneur be looking for in an M&A transaction? Both companies should be sure that the strategic fit is a sound one, and that a business combination is in the interest of all concerned. Some of the necessary elements for a successful business merger include complementary distribution channels, customers, and business cultures. In order to assess the likelihood of success, consider these critical questions:

Can you continue to succeed running an independent company? And equally important, do you want to run an independent company?
One of the key questions in considering an acquisition is fairly simple. Do you really want to continue to run an independent company? And, on a related note, can your company continue to grow and succeed as a separate entity? Remember, an acquisition, unlike an IPO, will often end your involvement in the company you’ve built from scratch. If you’re looking to exit your business, it’s a great option. It also may make sense if you feel your company has gone as far as it can go as an independent entity -- and that only integration with a larger company can bring it to new levels of growth and profitability.

What’s the acquirer’s track record in M&A?
The best way to succeed as a deal maker is to make lots of smaller, low-risk deals that hone the acquirer’s ability to select and integrate companies into its organization, says Bain’s Harding. By scrutinizing these previous deals, you can get a good sense for how your company is likely to fare once acquired.

Is there a good fit with the acquirer’s core business?
Successful deals typically bolster an acquirer’s core business. According to Harding, deals that grow a company’s scale -- adding similar customers or products –--are likely to succeed. Those that expand a company’s scope -- extending it into new customer segments, products or geographic markets -- are less likely to add value.

How well does the acquirer understand your business?
A seasoned acquirer will demand extensive due diligence, seeking to get a handle on your company, its competitive position and market challenges. This will help the company focus on the key drivers of your business. Companies that have taken on a private equity partner may already have gone through such a due diligence process, and will already have enhanced their financial and operating reporting systems to provide the data an acquirer needs.

Is there a good plan for integration on the table?
It’s important to move quickly once a deal is finalized, integrating business units in a rational way so that employees can continue to focus on their jobs. Developing an integration plan before the deal is finalized can make the transition easier.

What will happen to your company?
As a business owner, you may have strong preferences about what happens to your employees, your business facilities, or even the name and brand of your company once it’s acquired. Some acquirers may agree to these types of conditions in exchange for a lower offering price. Make sure you spell out your requirements clearly -- and that the acquirer is prepared to meet them.

Your exit strategy is simply the final stage in a long process of building your company’s value. By addressing these key variables, you can ensure that the merger offer you’re considering works well for both your company and the acquirer.

Walter G. Kortschak is a managing partner of Summit Partners, a private equity and venture capital firm with offices in Boston, Palo Alto, and London. Summit Partners invests in growing, profitable, privately held companies. Walter can be reached at 650-614-6600 or