Hi All -
For a PE firm, when deciding a path to exit what are some considerations between taking the PortCo public vs. exiting to a strategic/sponsor?
Ideally, from the best price you could fetch, I think the pecking order would put sale to a strategic first but what could be some scenarios in which an IPO would make more sense from a returns standpoint?
Thanks in advance.
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IPOs are great publicity typically so funds like to do them from that perspective (most funds really tout it when they bring a company public) but they’re also hard because there’s typically a lock up on share sales, so you might end up holding the bag if markets tank (happened to plenty of funds this year). Typically IPO candidates need to be “better” companies from a growth perspective - typically can’t take a manufacturing co that is growing 5% with 10% margins public unless it is absolutely massive.
Strategic sales are typically seen as “sexier” but typically rarer and less reliable.
Typically funds don’t decide strategic vs sponsor when they launch a sale process, they go to both and see who bids more. Usually a strategic is the goal because of (in theory) outlier multiple, but more often than not that is a pipe dream and there isn’t some strategic that’s going to pay and outsized price.
Other consideration is you can roll equity when you sell to a sponsor (say, keep 40% of the equity) and get a “second bite of the apple” as PE people love to say
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