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Private Equity Exit Strategy from Portfolio Companies for Value Creation

Private Equity Exit Strategy from Portfolio Companies for Value Creation

The last but most crucial step of the private equity investment process is the exit, which can significantly affect the final return on investment. Even after years of performing successfully, including taking the right approach to ownership, managing performance incentives, and being thoughtful, a poorly designed or executed exit has proved to be a good deal into a mediocre one. Furthermore, it becomes challenging regardless of the existing private equity exit strategies that not my intention to do so, numerous exist. Buyers are more demanding and sophisticated.  


Technological advancement makes it difficult for buyers and sellers to reach a shared understanding of risks and a potential valuation source. The process makes an exit trickier, widening the spread between strong and weak. Usually, private equity investors have a life span of 5 to 7 years and plan to exit after that, making a substantial profit on their investment. So, there are various exit strategies that Private equity Industry can use to offload their investment.  

Selling to Yourself: A New Exit Option in Private Equity | USPEC


Significant Private Equity Exit Strategy 


There are a few approaches to equity release that private equity fund managers consider while planning to exit from the business.  


Trade Sale 

It means selling to a significant or listed company within a similar industry that wants to expand its operations to other geographic regions or add new products or services. This exit strategy attracts a premium because the buyer is listed, trading at higher earnings multiple and getting an automated increment through numerous arbitrages. Other options, some private purchasers may be ready to pay a premium for a business that offers a strategic portal to launch new growth initiatives.  



The venture capitalist then offers his securities for public auction via public matter. Once the bonds of the invested company have been listed on stock exchanges, they are cited at an attractive price. An Initial Public Offering will yield profits if the markets are strong, and the administration cooperates. Investors can also choose to benefit from a longer-term shareholding in the company. Valuation is subject to market conditions. This is the main problem. An initial public offering involves significant transaction costs. The transaction requires careful planning. It can take a long time to implement and may result in market changes that could lead to the project being abandoned. 


Secondary Sale 

This often occurs when an acquirer is considering either achieving a long-term output on the dividends from the acquired company or expanding the existing company's offerings in the global market. Private equity managers will add significant value when it is time to sell Portfolio Company by allowing organization executives to focus on increasing business. In contrast, private equity professional use their knowledge to pinpoint the right approach and time to obtain the best price for business selling.  


Repurchases by Promoters  

It is one of the successfully used exit strategies where the management or promoters of the company repurchase the equity stake from the private investor. It is an exciting exit option for both investors and management.  


Liquidation of Investee Company 

If the investee company is not profitable and causes losses, the venture capitalist and private equity options recover the investment by settlement with a businessperson. It is the last and most favorable option but used by the company's promoters and can’t run a successful business.  


Dual–Track Process 

It is a process in which a PE investor can file for an IPO while also pursuing Strategic Acquisition. Despite the higher returns, the dual track is not a standard option for PE investors. It is expensive to do two separate procedures. 


Self-liquidating Process 

Private Equity and venture capitalists can finance debt by utilizing debt financing. The process is self-liquidating because the principal amount and interest are realized in monthly payments for a specific period. 


New Venture Capitalists – Sale 

Private Equity and venture capitalists can sell their equity in an enterprise to new venture capital companies interested in purchasing the ownership portion of the venture capital. This could be a sale to the venture capitalist to exit the company and realize the money. 



When investing in any organization, the exit strategy is crucial. The company is focused and operates efficiently by organizing and recording exit terms. If all goes well, the private equity industry will arrive, alter, and leave happy. It is essential to consider the pros and cons of each exit route and the reasons and nature of the private equity investor to get the expected return on investment. The amazing is the exit, the higher the return on investment for venture capitalists and private equity investors. The private equity investors expect an increasing return on their investment, and that rate increases with the success of the organization's exit.  




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