To Whom Should I Sell? Empirical Evidence from Private Equity Exits

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Using deal-level data from exit transactions initiated by private equity firms, we compare the valuation of three different private equity exit strategies (trade sale, secondary sale, and IPO). After controlling for target and deal characteristics, we find that private equity firms receive less when selling their portfolio companies to another private equity firm or when going public, compared to selling to a strategic buyer. The discounts remain significant when using different valuation methodologies for pricing (enterprise value/EBITDA multiple and Q-Ratio) and are consistent for all regressions conducted in this paper. We show that the valuation delta between strategic buyers and the two other buyer groups varies by industry and therefore argue that the discount seen in secondary sales and IPOs is mainly driven by a lack of synergies.

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