How do private Equity firms exit their Investments? Okay. So the most common ways for private Equity firms to monetize their Investments or through sales to a strategic buyer a sale to another Financial sponsor or an IPO.
The sale to a strategic buyer tends to be the most convenient while fetching higher valuations as strategics are willing to pay a premium for the potential synergies.
Um the sale to another Financial buyer may be less ideal as Financial buyers cannot pay a premium for synergies.
That being said there are many Financial buyers and this competitive tension and demand can help Drive prices up.
Sometimes it makes sense to include a mix of strategic buyers and financial buyers in an auction process. This is just to maximize the sale price.
The third method for a private Equity Firm to monetize its profits is for the portfolio company to undergo an IPO and sell it shares in the public market this however is an option exclusive to firms of a larger size. For example, Mega funds or Club deals that are large enough to be listed on an exchange. This can also drag out your return Horizon as there are some timing restrictions imposed upon shareholders at the time of the IPO.
With this question interviewers are trying to see whether you understand how you trigger the capital return on your investment. These are an integral part of the investment professional's role and the interviewer will want to make sure you know, the three main exit routes that exist for liquidation. They will mainly be intent on hearing the options but will appreciate a little more detail about each route and why one may be more relevant than another here the candidate demonstrates and knowledge of all the ways to liquidate and gives a little bit more information about each one and suggesting that an auction process might have both strategic buyers as well as Financial ones. The candidate is going one step further and showing an understanding of auction processes. Ideally, you will also be able to talk about your own experience with some examples of the deals you have worked on or read about and why the roots chosen made sense.
