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Financeprivate equity

For private equity firms, now is the time to sell

By
Laura Lorenzetti
Laura Lorenzetti
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By
Laura Lorenzetti
Laura Lorenzetti
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June 5, 2014, 5:16 PM ET

Private equity firms are heading for the exits. They’re cashing out records amounts of money this year with little sign of slowing down – at least as long as investor appetite for initial public offerings continues to be strong.

About two-thirds of private equity firms anticipate stepping up the pace of exits over the next year, and nearly one-third expect to tap an initial public offering, according to a recent Deloitte report.

“A meaningful percentage are looking at it as an exit strategy,” said Tom McGee, deputy chief executive officer at Deloitte. “Private equity firms are always going to look at what is the optimal exit strategy to position it for the next stage of growth.”

Companies are divesting their holdings this year because of a number of economic factors. Many firms have held purchases since 2006 and 2007, waiting for the right time to sell or list IPOs. Now, with record low interest rates, strong corporate balance sheets and a rising stock market, private equity is ready to strike.

The IPO market is off to its strongest start in more than 14 years, according to Dealogic. As long as the IPO market doesn’t hit a permanent lull (which Fortune’s Dan Primack reflected on earlier this month), PE exits through the public market may hit all-time highs.

Already as of the end of March, PE firms had priced 46 IPOs for a total of $17.4 billion, more than double the amount in the first quarter of last year, according to Ernst and Young. Also, as investors lament post-offering IPO performance, PE-exit deals have tended to do relatively well: PE-backed IPOs increased an average of 5.9% on their first day of trading and were up 7% through the end of the quarter, Ernst and Young said.

While IPOs have been top news for many recent PE exits — such as the Hilton and Twitter listings — most PE firms expect to divest primarily through strategic sales, either to a corporation or another PE company, Deloitte found.

The result of all these sales? Private equity also expects to play part in the rising mergers and acquisitions market.

“The theme around exits means there’s going to be a lot of activity,” said McGee. “They also expect to invest a lot.”

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