Selecting the appropriate exit strategy is crucial for success, contingent on market conditions, the company's maturity, and investor goals. At the Lazard T500 Venture & Growth conference in London in May 2024, experts discussed the options available for the best possible outcome. By staying informed and being adaptable, investors can effectively manage their portfolios and capitalize on opportunities.

A sign of recovery

The investment landscape is adjusting to new norms, marked by increased regulatory scrutiny and shifting investor expectations. Moreover, high interest rates and aggressive foreign investment controls are further impacting market dynamics, valuations, and liquidity constraints, necessitating adaptive investment strategies.

Nevertheless, current market trends suggest a budding recovery, characterized by increased activity and successful deals across various regions. Notably, there's been a 20% year-on-year increase in active IPO projects at Datasite, indicating growing market confidence. Recent IPOs, including those of unprofitable companies, have seen positive outcomes, hinting at renewed investor interest and optimism. And unexpected regions like South Africa, Sweden, Turkey, and the Middle East are showing some signs of IPO market recovery, underscoring a broader-than-anticipated reopening of market segments.

Secondary markets are also expanding rapidly. With $60 billion spent annually in the US, up 40% from the previous year, secondary markets are becoming a significant force. This growth necessitates that companies quickly invest in primary markets post-capital raise to capitalize on these opportunities, despite the challenges involved.

A balancing act

Exit strategies vary in terms of liquidity and post-exit involvement. IPOs and strategic M&As are two routes that present different liquidity levels. While IPOs offer high liquidity by allowing shares to be publicly traded, strategic M&As can vary, sometimes providing immediate liquidity but often involving ongoing engagement with the acquiring entity.

 Private equity (PE) exits offer another layer of complexity and compromise, with some investors exiting entirely whereas management might roll over a portion of their equity and continue to run the business until the next stage of development. Secondary transactions, on the other hand, provide an avenue for shareholders to achieve liquidity without waiting for a company-wide exit event, making them an attractive option for those seeking an earlier exit.

 The dual-track process involves preparing for both an IPO and a sale simultaneously. While this approach can generate competition and drive up prices, it is complex and resource-intensive. Nevertheless, it offers significant benefits, such as better pricing and reduced market or execution risks. And it seems to be experiencing a bit of a resurgence: per Datasite, 10% of the above-mentioned active projects are either IPOs or dual-track processes.

 A new market solution

The investment landscape for private companies is evolving with the development of new market solutions aimed at streamlining the investment process. These solutions leverage public market infrastructure but restrict access to professional investors, ensuring that companies maintain control over investment terms. This approach not only provides liquidity but also reduces discovery costs for investors, fostering a more efficient investment environment.

 The permissioned trading model is gaining traction, particularly for pre-IPO companies seeking greater control over their shareholder base while engaging in periodic trading activities. By running 12 auctions annually, with companies choosing to participate in eight, this model allows companies to maintain agency over their shares while benefiting from increased shareholder diversity and controlled liquidity.

 Alternative trading platforms provide a distinct approach from traditional public markets, emphasizing company-led negotiations and investor-approved stability. These platforms offer a more controlled environment for companies, ensuring stable and approved investment opportunities.

Learn more about how the Datasite platform can help you with preparing and managing your exit strategy – whatever route you take.