Liquidity and Exit strategies

Two basic exits events are when a company is  

 

·        going public (IPO) or

·        sold in a private equity transaction.

 

Not every company can or wants to go public. The majority of transactions happen between a few interested parties. How can owners of the company get liquidity when they cannot sell to the public under the U.S. securities laws? Common types of private equity transactions include:

 

·        Start-up and early stage venture capital or angel investor minority investments and seed investments – allows shareholders to sell a part or all of their equity interest to the accredited investors

 

·        Later stage, growth equity minority investments – the same as above

 

·        Buyouts - acquisition of a business by a private equity fund as a portfolio company

 

·        Sale of company, which can be structured as a merger, acquisition, sale of stock or sale of assets.

 

The above-listed are successful exits. There may also be unsuccessful exists from the business, such as

 

         Bankruptcy or Restructuring

         Sale to management –a sale of the company shares to the existing shareholders or the company itself for a low price.

         Distressed sale of company –usually to a strategic buyer or a private equity fund for a low price.

 

While unsuccessful exits won’t bring in big bucks, they may present a better option than carrying on the obligations someone does not want to have.

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