As exit opportunities recover to levels seen prior to the recession, more private equity houses are actively preparing their portfolio companies for exit. Recent data from Dealogic shows an uptick in IPOs, secondary buyouts and trade sales from deal activity two years ago. During the second quarter of 2010, 35 global IPOs involving private equity-backed companies generated a combined $8.3bn. By contrast, during Q2 2008 there were only 15 IPOs generating $6.3bn in value. Furthermore, in the second quarter of 2010, 40 global secondary buyouts raised $15bn compared to 52 secondary buyouts generating only $8.4bn in Q2 2008. The global PE trade sale market has also improved dramatically – the $52.3bn worth of deals so far in 2010 already exceeds the total generated in all of 2009.

But as financial sponsors prepare to exit their investments, they need to consider a number of factors to maximise the value of assets and increase their appeal to buyers. “The first step is to observe the motivation of management to exit a company,” says Chris Hale, a partner at Travers Smith LLP.

The nature of the asset, the condition of capital markets and current trends in bank lending also influence the type of exit a private equity firm might pursue. Buyers continue to find it difficult to secure financing for deals as debt markets are still recovering, which in turn affects the seller as it automatically reduces the achievable purchase price and the subsequent return to investors. While financing is available for smaller deals, debt leverage ratios usually do not exceed 60 percent and larger deals can only be financed by a broad pool of banks.

A well-planned, well-structured exit process that creates competitive tension among potential buyers is often the key to a successful exit, according to Mr Memminger. “It has been proven that an exit process where several potential bidders are involved usually secures an attractive return for the investor, coupled with a higher degree of deal certainty. The advantages of a competitive auction process should not be easily given away, though there may be circumstances when this is justified,” he observes.

IPOs

According to figures provided by Dealogic, the first two quarters of 2008 witnessed 17 and 15 IPOs respectively on the global stock markets. In the first quarter of 2008 combined IPO value was $2bn, but by Q2 2008 it had more than tripled to $6.38bn. By quarter three, however, the financial crisis had begun to close down the IPO window; only nine IPOs were conducted globally, generating a combined value of $1.41bn. By the end of Q4 2008, a further nine IPOs generated a mere $902m. During the first half 2009, the global IPO market remained depressed and witnessed only 4 IPOs valued at $568m. Yet by the third quarter of the year, the market began to rise with 11 IPOs raising a combined $4.19bn. This was followed by a fourth quarter performance of 37 listings valued at $11.47bn, more than for any quarter of 2008. Although lower than this peak, figures in 2010 have remained strong.

From July 2009 to the end of June 2010, the largest offering was biotechnology company Talecris. The company, backed by private equity firms Cerberus Capital Management and Ampersand Ventures, raised $1.06bn on the NASDAQ in September 2009. The stock priced at the middle of the $18 to $20 range expected by the company. Cerberus and Ampersand retained a 60.5 percent stake Talecris following the IPO. The maker of blood-plasma therapies said at the time that it intended to use the proceeds from the IPO to pay down debt. The listing came a few months after an Australian rival, CSL Ltd., dropped its proposed $3.1bn purchase of Talecris when the US Federal Trade Commission said the deal would violate antitrust laws.

The second biggest IPO during this time was the sale of 20 million shares in the Education Management Corporation (EDMC), one of the largest providers of private post-secondary education in North America, by a consortium of private equity firms. The deal took place in October 2009 and raised $414m on the NASDAQ, after the company initially filed in December 2007 to go public. EDMC’s original PE backers still collectively own 65.5 percent of the company.

In April 2010, metal processing and inventory management specialist Metals USA Holdings, backed by Apollo Global Management LLC, raised $240m by offering 11.43 million shares on the NYSE, making it the third largest listing of the last 12 months. The deal came to $20 per share, at the top of the $18 to $20 range. In all, Apollo generated a tidy 266 percent return on its initial investment.