Types of Exit Strategies in Private Equity

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Reach Alternative Investments
November 22, 2023
min read
Types of Exit Strategies in Private Equity

Exploring the Types of Exit Strategies in Private Equity

A sophisticated investor understands that every investment, including those in private equity funds, involves an entrance and an exit plan as part of the investment strategy. Exit strategies are ways an investment in a company is liquidated, which could allow investors to recoup, and potentially increase, their initial investment. This article intends to take our readers through types of exit strategies in private equity, and offer insights to aid your private market investment decisions with Reach Alternative Investments.

What are the Common Exit Strategies in Private Equity?

In the sphere of private equity, there are generally three broadly used exit strategies; Trade Sales, Initial Public Offering (IPO), and Secondary Sale. The choice of an exit strategy could be heavily reliant on the current market conditions, company performance, and investment horizon.

How does a Trade Sale Work?

A Trade sale involves selling the invested company to another company, usually in the same industry. This strategy is often the quickest and could be the most predictable route to liquidity for the investors. Trade sales have the potential to help investors to realise capital gains and the invested company to increases in scale, potentially enhancing long-term growth.

What is an Initial Public Offering (IPO)?

An IPO is the process of offering the shares of a private corporation to the public in a new stock issuance. This strategy provides a means for the private equity investor to realise a significant part of their investment, potentially at high multiples, especially when market conditions are favourable. However, the IPO process can be time-consuming, costly, and subjected to market uncertainties.

How does a Secondary Sale function?

A secondary sale involves the selling of a private equity fund's stake in a company to another private equity firm. This exit strategy is commonly used when a fund’s investment period is ending, but the firm believes more gains could potentially be realised with more time. Secondary sales not only provide liquidity to the selling investor but also extends the investment horizon for the invested company.

Understanding the Risks

Any investment in private equity comes with a level of risk. Selecting the appropriate exit strategy requires deep knowledge of markets, timing, and risk tolerance. A misstep in this process could limit returns or potentially lead to capital losses. Prospective investors should diligently assess these risks, keeping in mind that Past performance is not a guarantee of future results.

How does Reach Alternative Investments aid in this?

At Reach Alternative Investments, our expert team conducts research, assessing each fund's potential. Through our investor portal, you can get key details and our research findings of selected funds.

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