Table of Contents:
Exit Strategies
This is a complex issue and one that has been asked of us by every potential investor. Any ideas you can add here...
Exit strategy is basically answering the question for the investor of how to get their money back out. If I invest in a stock, my exit strategy is selling the stock when the price goes up. If I invest in a business, as an investor and not a permanent owner, then I want to know how I convert my investment back into money.
One common exit strategy, for example, is to build the company to be acquired by a larger company sometime in the future. Another is to plan on a public stock offering(IPO).
Types of exits
1. IPO
2. buyout deals - Purchase by Private Equity group
3. Mergers and Acquisitions
"Portal" Market on Nasdaq - to trade share of private companies
Today marks the launch of a new market -- the Portal Market. Portal, a trading exchange that will be run by Nasdaq, will be a venue through which shares in private companies can be traded in real time, in much the same way securities are bought and sold in the public markets. However, the cost to play in the newest game in town is higher than average. Qualified investors must have $100 million in assets to participate.
This private market, while not the first of its kind, will be the largest, with an anticipated 500 companies ready to list shares. These companies will essentially be making "initial private offerings" and be subject to far fewer regulations than their public counterparts.
With recent news of faltering IPO markets (the public ones), perhaps this emerging exchange will offer new exit strategies for private-equity firms. Or, with the current challenges of securing debt for leveraged transactions, middle-market buyout firms may find Portal to be a desirable place to put their money to work -- a place where they can invest in a smaller piece of a private company. This, of course, has drawbacks: instituting operational changes while owning a minority stake will be a challenge.
The Portal Market may one day be a home to private-equity firms themselves. Kohlberg Kravis Robert & Co. updated its IPO prospectus in a SEC filing this week. The new disclosures point to potentially negative impacts that could stifle a public offering. Since Blackstone's public offering, its share price has declined and foundered as investors realize short-term gains are difficult in today's private-equity market. Portal will likely cater to a more savvy investor base seeking long-term gains -- the perfect behind-the-scene owners for PE GPs looking to cash out?
With googles stock price falling like a rock (thus limiting industry consolidation and mergers), and a lack of IPO's in the foreseeable future, nor credit for LBO's, Im fearfult that the exit market may dry up. Without an exit, the churn rate of many Web2.0 companies might be too high. Time will tell...
Industry Statistics
see more data in our KookyPlan page: private equity trends
Links from KookyPlan:
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