How do you decide how to exit / generally realize value from a company?

I just finished the TTS fundamentals of corporate valuation and while it all generally makes sense, I'm wondering how you decide between a sale and an IPO, and under what circumstances you'd want to do a dividend recap.

I would appreciated answers and suggested reads alike. Thanks.

Comments (4)

 
Nov 20, 2017 - 1:23pm

Market conditions would be a key factor in the decision. If it's a cold ipo market, than that would be a big drawback on that type of exit. If the pe firm wants to continue holding part of the company like growth equity, than ipo is also considered.

It also depends on the company, initial valuation, and the PE firm's desire to sell. If there are potential strategics who would buy the entire company or if it has some assets appealing to strategics and some not would determine what type of buyer you get.

If the initial valuation is too large for a sale to a competitor for very large companies, then the ipo option is stronger. If the initial valuation is smaller, can flip to another financial buyer.

If the holding period is long, IRR is too low, or needs cash, than the pe firm will do what ever is quickest to divest entirely.

 
Nov 20, 2017 - 8:21pm

To add to this, if other recent IPOs within the industry have fallen flat it could also lead to other exit plans. LPs also have influence to an extent because fundraising is a relatively constant activity at PE firms and they won't reinvest if they don't have some returns.

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