Top Private Equity Exit Strategies

In the life cycle of a private equity investment, the moment of exit is a critical phase since the choice of the disinvestment strategy affects not only the financial return but also the reputation of the fund and investor confidence. Understanding the options available is essential for fund managers, entrepreneurs, and advisors involved in medium and long-term operations.

This article examines the main international private equity exit strategies​, highlights their advantages and limitations, and provides an up-to-date picture of global trends.

Understanding Private Equity Exits

In the context of private equity, an “exit strategy” represents the moment when the fund decides to divest a holding by returning capital and potential profits to investors.

The method and timing of divestment directly influence the IRR (Internal Rate of Return), a key indicator for measuring the profitability of the entire fund. Unfavorable timing or poorly aligned choices can compromise expected returns, even in the presence of good operating outcomes.

For this reason, many funds define an exit strategy early on in the investment phase so as to structure the growth path of the investee company according to a divestment scenario consistent with the fund’s objectives and investor expectations.

Initial Public Offering (IPO)

Among the disposal options, an initial public offering (IPO) is one of the most visible and structured routes, as listing a company on the stock market allows its value to be realized through public trading.

However, not all companies are suited to the IPO process. Strict requirements are needed in terms of financial transparency and operational soundness, and exposure to public markets brings increased volatility and tighter control for stakeholders.

IPOs can be particularly effective in favorable market conditions where demand for upcoming issues is high, and valuation multiples are competitive.

Strategic Sale

Another option is to transfer the business to a larger, industry-leading company. Among the exit strategies for private equity, this is the most suitable for those who want to expand into the market by integrating the capabilities of the portfolio company and developing favorable synergies.

This process also has some critical issues, such as the complexity of integrating the existing company and the confidentiality of the agreement—with the risk of not complying with transparency requirements.

Secondary Buyout

A secondary buyout occurs when a private equity fund transfers a stake to another fund in the sector.

Selling to another fund can be optimal when the buyer has the resources and experience to support the next phase of development while the seller can complete the exit relatively quickly.

Price negotiations can be complex, especially when previous valuations are high or not fully justified by future developments.

Management Buyout (MBO)

A management buyout (MBO) involves the acquisition of the target company by its internal management, often through external financing.

An MBO can be particularly suitable when management demonstrates a strong commitment to business continuity and has in-depth knowledge of the portfolio company’s operations. This type of exit ensures a smooth transition while preserving the organizational culture and relationships with customers and suppliers.

Potential risks may be related to the management team’s financial capacity, which often has to resort to significant leverage to finance the acquisition, risking excessive debt.

Recapitalization

Recapitalization is a partial exit strategy in which the private equity fund obtains liquidity from an investment without completely selling its stake.

The main advantage is access to early liquidity, as the fund can return capital to investors (what is a limited partner?) without waiting for a total exit.

Typical financing models include issuing additional debt or refinancing existing debt, financing through leverage, or obtaining the necessary equity tranche from an investor.

Liquidation or Wind-Down

Liquidation and wind-down are also part of the exit strategies for private equity firms. These two models are used when the company no longer generates value or is impossible to sell on the market, making it impossible to carry out the operations mentioned above.

There are many factors that lead to liquidation or wind-down: insufficient performance, failure of the business model, sectoral economic crises, and the need to divest financial resources.

The process requires the liquidation of all company assets and the repayment of debts to creditors, using trusts to manage the liquidation where necessary.

Factors Influencing Exit Strategy Selection

When choosing the right exit strategy, it is essential to consider both internal and external factors. For example, internal factors include:

• Fund maturity: Exit is often tied to fund predetermined duration, so managers must plan exits to meet deadlines.
• Portfolio performance: The most appropriate strategy should be chosen based on performance. If the company is outperforming, an IPO or strategic sale is recommended; otherwise, liquidation or recapitalization should be considered.
• Investor commitments (LPs): Some funds have clauses that must be complied with, such as the need to return capital by a certain date or to guarantee minimum returns (hurdle rates).

External factors, on the other hand, include more macroeconomic aspects such as market trends, secondary market demand, and valuations. The exit strategy should not be improvised but defined at the outset of the investment with optimal planning.

Legal and Tax Considerations in Exits

As mentioned earlier, there will be tax and legal implications in exit transactions, especially in private equity, as there is such a difference between jurisdictions. For example, several jurisdictions diverge on the way to tax capital gains or how to classify distributions of dividends to investors.

From a legal perspective, there will need to be quite extensive agreements, warranties, representations, and indemnities. Compliance reviews will be necessary, especially where the business is regulated or the transaction is cross-border. 

In the context of multiplicity of procedures, complications, and ongoing compliance, most appropriate practice is to work with a suitable legal advisor.

The Role of Advisors and Consultants

Financial advisors and private equity consulting service play a crucial role in designing and implementing exit strategies, as their support is multidisciplinary and includes realistic company valuation, identification of potential buyers, and management of negotiations to maximize value for investors.

Another core activity is exit preparation through exit readiness assessments. In addition, advisors assist in the due diligence process by preparing documentation and specific responses, facilitating a smoother and faster transaction.

Exit Timing and Market Windows

In private equity, the timing of the exit has a decisive influence on the valuation of the portfolio company and the success of the entire transaction, as exiting in a favorable market can mean obtaining higher multiples and more advantageous conditions. Conversely, poor timing can lead to forced discounts with consequent economic losses.

The indicators to consider are the usual ones: macroeconomic conditions, sector performance, and secondary market trends.

Each fund has a fixed duration (usually 10 years) and, although extensions are possible, as the maturity date approaches, managers may feel pressured to sell, even under suboptimal conditions, to return capital to investors.

Measuring Exit Success

Following an exit, investors may be interested in evaluating its success. Two measures are typically used: the IRR (Internal Rate of Return), which expresses the annualized return on investment, and the MOIC (Multiple on Invested Capital), which is the ratio between capital returned and capital invested.

Sometimes, quantitative measurements are not the only ones taken into consideration. An improvement in the fund’s reputation or LP satisfaction is also an indication of a successful exit.

Future Trends in Private Equity Exits

The evolution of private equity trends in exits is clearly moving to alternative methods like mergers with SPACs and continuation funds that allow liquidity in their existing portfolio company without having to give up control of their assets. Emphasis on ESG compliance also intersects with exit plans. Investors want sustainable and transparent profiles. Similarly, LPs demand further clarity on the performance and reputational impact of their divestments. As a result, managers are expanding their reporting requirements and integrating exits into customer relations documentation.

FAQs

What are the most common exit strategies for private equity firms?

The most commonly used are IPOs, strategic sales, secondary sales, MBOs, and recapitalizations.

How long does it take to execute an exit strategy?

Depending on the chosen method, the process can take from a few months to over a year.

Why would a PE firm choose a secondary buyout over an IPO?

Because secondary buyouts are often faster and require less regulatory scrutiny.

What role does timing play in private equity exits?

Some indicators of good timing are market conditions, the fund’s life cycle, and company performance.

Are there risks associated with management buyouts?

Yes. The main risks are overestimation and uncertainty about future performance.

Can a PE firm exit in stages?

Yes, it can do so through recapitalization or partial divestitures.

References

S&P Global Market Intelligence. (2025). Private equity exits fall to 2-year low in Q1 2025.  https://www.spglobal.com/market-intelligence/en/news-insights/articles/2025/4/private-equity-exits-fall-to-2year-low-in-q1-2025-88524467spglobal.com

Bain & Company. (2025). Private Equity Outlook 2025: Is a Recovery Starting to Take Shape? 
https://www.bain.com/insights/outlook-is-a-recovery-starting-to-take-shape-global-private-equity-report-2025/bain.com

Neuberger Berman. (2025). Neuberger Berman Collects Over $4 Billion for GP-Led Secondary Deals. The Wall Street Journal. https://www.wsj.com/articles/neuberger-berman-collects-over-4-billion-for-gp-led-secondary-deals-c1c018a7