What determines the post IPO exit process for private equity investors? : an empirical analysis of private equity divestment strategies

Abstract

The objective of this thesis is to investigate what determines the post IPO exit process for private equity (PE) investors, through an empirical approach. Our sample data for the analysis consists of 466 private equity (PE) backed companies listed on American stock exchanges through an initial public offering (IPO) in the period 1996-2005 We find that private equity investors seem to prefer an exit through a block sale or a less amount of sales. We also find that a low equity stake in the portfolio company is the most important characteristic for an easier exit for the investor. This includes a shorter divestment period and a higher probability of exiting through a block sale. The portfolio company with a higher pricing, represented by the price to book ratio, presents the easiest exit with a shorter divestment period and fewer sales. We also find that private equity investors stay invested well after the IPO in order to increase net income and profitability considerably, thereby increasing the value of their equity stake before exiting.