Exit

An exit is the sale of an investor's stake in order to realise the outcome of the investment. This usually happens through a sale of the company or an IPO. For funds, the exit is the moment when the success of an investment finally becomes visible. The common routes are a sale to a strategic buyer, a sale to another financial sponsor, an initial public offering, a transfer into a continuation fund run by the same manager, and a buy-back by management or the founders.

Each route has its own profile: a strategic buyer can pay for synergies and may therefore offer a higher price. The scope of warranties is negotiated separately. A financial sponsor often values the business on a stand-alone basis but may also consider synergies from combining it with existing investments. A listing initially delivers only a partial sale and ties the existing owner in through lock-up periods. Holding periods in buyout funds are typically four to six years and are not fixed but result from value created, market environment and fund life. Preparation starts long in advance, because a company without reliable figures, without management below the owner and without documented processes takes noticeable discounts in a sale.

Because fund life is limited, pressure to sell builds towards the end and weakens the negotiating position. Buyers therefore pay attention to how old a fund is. For founders and entrepreneurs, by contrast, an exit is often a once-in-a-lifetime event with a substantial personal dimension. A multi-year view has proven itself in preparation: first reduce dependence on the owner, then put reporting on a reliable monthly footing, and finally present earnings quality on an adjusted basis. Only then does the process itself begin. Personal objectives also need clarifying, because the highest price, the fastest completion and the continuation of the business under particular leadership cannot always be achieved at once, and the order of those goals determines the choice of buyer.