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