easy · Private Equity value-creation

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?

  1. Strategic buyers can pay a synergy premium that financial markets do not value in an IPO.
  2. Trade sale processes carry no advisory or legal fees, unlike IPO underwriting spreads.
  3. Public markets rely solely on DCF, whereas trade buyers price deals only on EBITDA multiples.
  4. An IPO always embeds a mandatory control premium that permanently depresses the initial share price offered.

Sign up free to see the explanation and track your rank →

More Private Equity value-creation practice

KomFi: Test Prep Made Easy

KomFi: Test Prep Made Easy — free adaptive practice for GMAT, GRE, SAT, ACT, National Real Estate Exam, Investment Banking, and finance with full explanations.

KomFi Academy is free GMAT prep and personalized GMAT help built as a training platform: 92,240+ practice questions, 30,500+ flashcards, on-demand video lectures, podcasts, and 4K slide decks. Flagship tracks: Free GMAT Prep, Free GMAT Resources, National Real Estate Exam Prep, Investment Banking Prep, Finance Prep, GRE, SAT, ACT, LSAT, MCAT, Financial Accounting, Private Equity, Private Credit, and Quantitative Finance.

Free GMAT Prep & Personalized GMAT Help

What's inside

Topics

View pricing · Read testimonials