Exit Strategies of Buyout Investments - An Empirical Analysis

We analyze the three main exit routes for exiting buyout investments, initial public offerings (IPO), sales and write-offs on, using a unique data set for US and European buyout transactions for the 1990 to 2005 period. We examine the determinants influencing the choice of an exit channel employing a multinomial logit model. The results strongly support the view that private equity investors write-off investments that turn out to be non-performing early, showing their ability to filter out good from bad investments. We further find evidence that exits of buyout investments tend to be driven by market sentiment. We further analyze as to how the internal rate of return (IRR) influences which exit route is chosen. We find supporting results that only the most profitable ventures are taken public. Our results have implications for exiting buyout investments during the current financial crisis.

Steffen, Sascha, Daniel Schmidt and Franziska Szabo (2010), Exit Strategies of Buyout Investments - An Empirical Analysis, The Journal of Alternative Investments 12 (4) , 58-84