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

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Private Equity Due Diligence Checklist: 10 Questions Family Offices Should Ask

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