A recent edition of PitchBook News Private Equity: Basic Edition cited a decrease in 2009 in exits from private equity investments through sales to other private equity firms. The article stated that these secondary sales are down approximately 22 percent from their levels in 2005 through 2007. In 2008, many private equity exits took the form of sales to strategic buyers. In 2009, IPOs increased by approximately 19 percent, according to the article.
So what does this mean? Late 2007 saw the beginning of the current economic crisis and, in that time, it appears that private equity firms continued to feel confident in investing their money. In many cases, they did so by buying out other private equity firms.
In 2008, when it became clear that the economic crisis would not be short-lived or minor, strategic buyers became the most obvious source for private equity liquidity. Strategic buyers saw opportunities to enhance their businesses through the synergies offered by private equity portfolio companies. In addition, valuations were very low: the perfect formula for strategic acquisitions.
In the later parts of 2009, we have seen the public equity markets bounce back significantly. Instead of shying away from the public markets' previously unequaled volatility and sharp decreases in value, private equity firms looking for an exit option seem to have again turned their focus to the IPO as a possible exit strategy.
Hopefully, markets will continue to stabilize, valuations will become more reliable and private equity firms will invest some of the money they are currently holding. If all these things happen, we can hope to see a return of multiple options for private equity exit strategies.