hard · Private Equity & LBOs
A private equity sponsor is choosing between a 'Trade Sale' and an 'IPO' as an exit route. The target company has significant revenue synergies with a major industry competitor.
Why might the 'Trade Sale' yield a higher valuation?
- Strategic buyers can pay a synergy premium that financial markets do not value in an IPO.
- Trade sales are exempt from transaction fees, unlike the underwriting fees of an IPO.
- Public markets only use DCF valuation, whereas trade sales only use EBITDA multiples.
- An IPO always involves a 'control premium' that reduces the initial share price.
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