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.