Multiple options exist
- Sell to the public market, through an IPO
- Sell to a strategic buyer
- Sell to management, through a management buyout (video #2)
- Sell to another private equity firm
- Take on debt and pay out a dividend (dividend recapitalization)
Be conscious when selling to a strategic buyer
- The strategic buyer will be aware of your strategies (trade secrets)
- The strategic buyer may have a competitive advantage after walking away
- Recommendation: ask for a deposit before disclosing your trade secrets
An example
A private equity firm buys a majority stake in Alice’s clothing company, as
- The company has no debt
- The company has successfully penetrated the North American market
- The private equity firm has lots of contacts in the European clothing industry for the company to expand
After the expansion succeeded, the private equity could exit through
- An IPO, in the US or Europe
- A strategic buyer, such as a big clothing company
- Management buyout, sell it back to Alice
- Another private equity firm buyer, potentially for expanding into other markets such as Asia or Australia
- Dividend recap, if they have enough room for more debt