Exit Strategies For Private Equity Investors

Exit Strategies For Private Equity InvestorsPrivate equity is basically the fund that is not listed on a public exchange. It is an asset comprised of funds and investors who directly invest in private companies or engage in buyouts of public companies. Private Equity Investment in India plays a huge role in the development of a company. The investors of these private equities, at the time of their entry, already have a prepared plan for exit. They never plan a forever or long-term mutual relationship with the company. After acquiring a substantial amount of profit they plan to exit.  While exiting an investor has a lot of options likes:-

Initial Public Offer (IPO):-

IPO is a very common way used by investors as an exit strategy. They come out with a public offer and sell the shares as a part of the IPO to the public. The allotted shares can be sold by the investors immediately or after the company gets listed and the shares start trading on the exchange. 

Secondary Buyout:-

Another alternative for the investors is the secondary buyout option where one PE sponsor can sell his share to another PE sponsor. The secondary buyout option can be used under a lot of circumstances like when the PE sponsor is not interested anymore and the company is ready for IPO or if the management wants to change the PE sponsor. It is a very straight and simple process to exit.

Leveraged Recapitalization:-

The Leveraged recapitalization is a strategy where the PE sponsor can extract cash from the business without selling the company. The company borrows cash from the bank or gets bonds issued which are later used to redeem the shares held by the PE sponsor. Before using this strategy, it is important to take in consideration that a highly averaged company may have a greater risk of bankruptcy in this process.

Liquidation of the Investee company:-

At times, the investee companies might not be able to run in profit or grieve a loss. For times like these, the venture capitalist and the PE sponsor choose to recover his investment by negotiating on a settlement with the businessman. Failing to pay this amount will result in winding up of the enterprise through court. 

Repurchase by promoters:-

This is a procedure where if the PE sponsor is willing to sell his equity stake, the management or the promoters of the company buy back his share. This is a very easy way of selling the equity share and it lacks the complications faced in other exit strategies.