Corporate acquirers were the leading buyers in private equity exits in 2023, making up 48% of all PE exits. The reason is clear: strategic buyers typically pay higher premiums – averaging 14.8x EV/EBITDA compared to the 13.2x that financial buyers offer. However, this comes with conditions.
There are a few core steps to getting the best outcome. Sponsors need to articulate precise synergies – moving past broad “cost savings” to define product extensions, new geographic markets, or meaningful technology improvements. When running an auction process, creating real competition without turning it into a chaotic setting is crucial. Building in go-shop periods can help surface additional bidders and keep the process competitive.
Risks have increased. Many corporate buyers are slowing down post-close integration due to changing market conditions, stretching deal timelines and making completion more difficult. The synergies that once delivered premium prices are now heavily evaluated with downside scenarios in mind.
Currently, there is greater buyer interest from corporates shifting to digital transformation deals, with technology, health-tech, and renewables commanding the biggest premiums. Any sponsor seeking premium pricing will need to carefully test their synergy cases against tough scenarios and plan for longer, more demanding closings.
Initial Public Offerings (IPOs) provided $72 billion in proceeds across 312 PE-backed listings in 2023. However, the window for new issuances remains narrow. Sectors such as fintech and biotech saw better results, while industrial and consumer businesses found it difficult to generate investor excitement.
Market timing now requires deliberate planning, often targeting periods between earnings announcements to maximize investor focus. Projections for growth must be believable and supported by specific metrics that withstand both initial interest and post-IPO scrutiny. Sponsors should also prioritize board independence and establish transparent disclosure practices early on.
After the IPO, sponsors often face new risks. Lock-up periods can limit share trading, sometimes leading to sizable price volatility. In 2023, the average PE-backed IPO was down 15% six months after execution – demonstrating the effect of revaluations and overall market conditions.
Late 2024 could offer some windows of opportunity, especially for companies in artificial intelligence and climate-tech, but sponsors should always have a backup plan. For many, a dual-track process – including both IPO and trade sale options – offers flexibility. Gone are the days of relying on IPOs for premium exits.
Secondary market activity jumped to $180 billion in volume in 2023, a 15% increase from the year before. This growth reflects both LP needs for liquidity and GPs looking for exit flexibility. These transactions now involve a diverse mix of buyers, from specialist secondary funds to insurance companies and sovereign wealth vehicles.
These types of deals require careful valuation, often relying on independent net asset value (NAV) reviews and forward-looking stress tests. The choice between portfolio-plus-fund interests (known as “stapled” transactions) and continuation vehicles can shift deal pricing by 10-20%. Sophisticated buyers – like pension funds and family offices – demand credible marketing information and real pipeline visibility.
Typically, buyers in the secondary market seek discounts of 20-30% to the previous round’s price, especially if growth has been slower than expected. This tension between seller expectations and buyer valuation often reveals the true state of the asset more quickly than traditional private market sales.
Continuation funds set up and managed by GPs are becoming more common, especially for investments that need more time to develop or where fund life has expired. This structure allows GPs to maintain exposure while providing existing LPs with a liquidity option – a model that is increasingly popular in late-stage VC and special situations.
PE-to-PE deals, or secondary buyouts, made up 22% of all exits in 2023 – a clear sign of an industry coming of age. In these transactions, sponsors sell companies to other private equity firms. These deals provide buyers with businesses that have proven their value and sellers with a way to re-price assets at, ideally, higher multiples.
Effective execution is crucial. Sellers should demonstrate sustainable EBITDA growth and margin improvements, knowing buyers will dig deep in their diligence. At the same time, managing a competitive process among both financial and strategic buyers increases deal tension and final pricing. It’s also critical to have insight into the health of customer pipelines, particularly in sectors that might slow down as cycles mature.
Still, the limits of “multiple arbitrage” are increasingly clear. If value-creation plans are not met, new buyers will apply discounts. Financing can be a barrier as well, especially if debt markets become less willing. This is particularly relevant in tech and software sectors, where stable recurring revenues can still make these deals attractive.
Sponsors returned $68 billion through dividend recap transactions in 2023. This strategy, which involves refinancing debt to pay a distribution to owners, helps meet LP expectations early without immediately selling equity. When done well, sponsors get liquidity while maintaining ownership and growth potential.
The structure of these deals needs to be carefully managed. Lenders look for strong cash flows and strict compliance with leverage covenants, especially in periods of economic stress. Communication with LPs is also essential, especially regarding how recaps affect hold periods and long-term returns.
Median debt-to-EBITDA jumped to 5.2x after recaps in 2023, increasing refinancing risk for sponsors as credit environments change. Future deals may rely on a mix of payment-in-kind (PIK) and cash structures, particularly in stable sectors with predictable cash flows. Sponsors need to balance the desire to return capital against the risks of excess leverage.
You can find more about important financial metrics and their impact on structuring these transactions in our guide to financial modelling best practices.
Management buyouts (MBOs) empower existing leadership teams, streamlining diligence and often simplifying negotiations. These deals occurred at a median multiple of 8.3x EV/EBITDA and made up 7% of exits in 2023, especially appealing when GPs value execution certainty.
For sponsors, evaluating the management team’s capabilities is a top priority. This means testing strategic plans, reviewing incentive arrangements, and confirming ongoing equity participation. Deal structuring should thoughtfully combine senior debt, unitranche financing, and seller notes to keep costs down and incentives aligned. It’s also key to secure minority investor protection and post-close governance rights.
MBOs are not risk-free. Some management teams lack broader market experience, especially in volatile or distressed industries. Sponsors need to ensure that leadership can adapt and that additional management may be brought in if needed. We may see more MBOs in sectors facing rapid change, such as retail and energy, as specialist operators target consolidation opportunities.
To further understand M&A deal protections and their significance, see our guide to
essential legal documents in M&A.
There was $120 billion in carve-out exits in 2023, as sponsors realized that divesting non-core operations can drive value. Standalone business units with a focused strategy can often secure premium valuations, as buyers are keen on acquiring assets that will benefit from independent ownership.
Separation planning is crucial. This means preparing complete data rooms with reliable financial, operational, HR, IT, and supply chain data. Narratives should stress how independence will unlock margin or growth potential. Carve-out processes are time-consuming, typically running 6–9 months to accommodate transitional service agreements and corporate disentanglement.
However, these deals present risk, as underestimating the costs of going standalone can impact final price or delay closing. Having back-up plans and maintaining good relationships with corporate sellers can help mitigate these risks.
Digital and supply-chain carve-outs may continue to increase as more companies focus on their main strengths. For further insights on executing business separations and their strategic value, see my article on executing a successful business separation.
Sales to international buyers, especially in Asia and the Middle East, brought valuation premiums up to 12-18% compared to domestic deals in 2023. This trend is driven by global capital flows and, in some cases, favorable currency movements. However, conducting these sales adds regulatory and operational hurdles.
Early planning is required on regulatory and tax fronts. Foreign investment screening, cross-border tax agreements, and cash repatriation must be mapped in detail. In addition, addressing cultural differences – both in negotiations and in integration post-close – can improve the chances of success.
Sponsors pursuing cross-border deals should expect longer timelines and varying standards for due diligence. It’s important to work with advisors who can bridge regional market practices and regulatory expectations. Examples include digital businesses in cross-border tech and supply chain infrastructure, which remain attractive to global buyers.
For more on cross-border M&A concerns, check out cross-border M&A themes and considerations.
Special purpose acquisition companies (SPACs) accounted for fewer than 3% of PE exits in 2023. After peaking in popularity, SPAC deals have been hurt by greater regulatory scrutiny and weak aftermarket performance.
While the SPAC structure provided initial liquidity for sponsors and helped companies go public quickly, most recent SPAC listings have faced wide valuation bands and significant stock price volatility. These factors, coupled with increased redemption rates and capital constraints, make it a less reliable exit option today.
Despite the decline, some late-stage technology or asset-light businesses may still consider SPAC mergers – especially if traditional IPO or sale avenues remain difficult to access.
A small but growing number of PE funds are turning to structured asset sales, where part or all of a portfolio company is sold through bespoke financing structures. These arrangements are especially common in asset-heavy industries or where full company exits are challenging.
Structured deals can include preferred equity stakes, royalty interests, or complex earnout agreements (see earnout valuation techniques). They allow sponsors to de-risk an investment, capture some liquidity, and offer buyers an incentive to pay more for participation in future upside.
However, these sales are complex to negotiate and require careful alignment of incentives among all stakeholders. They are best suited for sponsors with deep experience in both structured finance and the operating industry in question.
Recapitalizations – raising new equity or debt and restructuring company capital – offer sponsors a path to liquidity without giving up full control. They can be used to bring in minority investors, refinance outstanding debt, or set up for a future sale.
These transactions require both disciplined financial planning and clear communication with existing stakeholders. The focus is on creating a capital structure that supports ongoing company performance, satisfies new investors, and keeps options open for future exit paths.
Sponsors should weigh the pros and cons carefully. Recapitalizations can reset company direction, but if not structured properly, can create future conflicts or dilute existing investor economics.
The modern PE playbook features a range of creative options, moving past the simple binary of IPO or trade sale. Success today depends on choosing the right exit process for each asset and market cycle, managing risk, and staying prepared to pivot as conditions shift.
Sponsors should be ready to use multiple exit avenues, with contingency plans in place. An understanding of secondary markets, carve-outs, recaps, and structured deals will add value as exit windows open and close.
For further detail on financial metrics and due diligence best practices, you may find value in our articles about financial due diligence in M&A and the steps to reduce risk in the M&A process.
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