Exit Options Review

---
name: Exit Options Review
description: Compares the routes out of a portfolio company -- trade sale, sponsor-to-sponsor, IPO, continuation vehicle or continued hold -- on achievable value, certainty, timing and readiness cost, when you need to choose a route rather than justify one.
---

# Exit Options Review

## When to use

Use this skill at the point where the fund is deciding how to exit, not whether -- usually 12-24 months before the intended realisation, and again whenever something moves the decision: a debt market that reopens or shuts, an unsolicited approach, a fund whose life is running down, or LPs pressing for DPI. Run it before a bank is mandated: once an advisor is appointed the process design is largely fixed, and a route chosen for the wrong reason is expensive to reverse.

## What it does

Produces a like-for-like comparison of five routes -- trade sale, sponsor-to-sponsor, IPO, continuation vehicle, continued hold -- each scored on achievable value net to the fund, certainty of completion, time to liquidity, and the readiness work required. It ends with a primary route, a fallback, and the conditions that would switch between them.

## Method

### Step 1 -- Fix the hold case first

The continued hold is the reference case, not a residual. Model two more years of ownership: EBITDA on the current trajectory, debt paid down, the exit multiple you would then assume, and the equity value that produces. Discount it back at the fund's cost of equity to compare with cash today. Without this number no route can be judged, because every route is being measured against doing nothing.

### Step 2 -- Score every route on the same four axes

Value: proceeds net to the fund at its ownership percentage, after debt and transaction costs -- never headline EV, which flatters routes with different capital structures. Certainty: the probability the route completes at the indicated price, and what it depends on. Timing: months to cash in the fund's hands, not months to signing. Readiness cost: the work and spend required before the route is credible. Score all five routes on all four axes even where one looks obviously wrong -- that discipline is what makes the recommendation defensible.

### Step 3 -- Work the route-specific risks

Trade sale usually carries the highest price because a strategic can underwrite synergies, and the lowest certainty because of antitrust review, board processes, and the information you must hand a competitor to get there. Sponsor-to-sponsor is faster and more predictable but caps at what an LBO model supports, and needs enough runway left for the next owner's own return. IPO is a financing event, not an exit: the fund still holds the position after listing, subject to lock-up, free-float minimums, a listing discount and the cost of being public. A continuation vehicle keeps the asset but must be priced by third-party capital, requires LPAC consent and usually a fairness opinion, and asks LPs to choose between rolling and cashing out. Continued hold has no execution risk and full market risk.

### Step 4 -- Test the fund-level constraints

Route choice is not only an asset decision. Check fund life and extension rights, current DPI and what the next fundraise needs, concentration in this position, follow-on capital if a continuation vehicle or IPO leaves the fund exposed, and conflicts requiring disclosure. A continuation vehicle in particular puts the GP on both sides, and the governance around price is the whole of its credibility.

### Step 5 -- Recommend a route, a fallback, and the switch conditions

State one primary route and one fallback, and the specific events that would move you between them -- a bid below a stated threshold, a financing market that closes, a lost re-tender. Where a dual-track is proposed, price it: running an IPO and a sale in parallel costs real money and management time, and its value is the tension it creates, which should be stated rather than assumed.

## Inputs

- Current LTM EBITDA, net debt, fund ownership percentage, and the capital structure
- The original IC memo entry assumptions and the value creation plan to date
- Current trading comparables and any recent precedent transactions in the sector
- Fund position: vintage, remaining life, DPI to date, follow-on capacity
- Any live approaches or advisor views on the buyer universe

## Output format

Four sections:
1. Hold case: two-year forward equity value and its present value
2. Route assessments: one paragraph each, carrying value, certainty, timing, readiness cost
3. Fund-level constraints, stated as facts rather than preferences
4. Primary route, fallback route, and the switch conditions

Total length: 900-1,400 words. Written for the deal partner and the investment committee.

## Example

**Route comparison (fictional -- Halden Instruments, LTM EBITDA $42M, net debt $180M, fund owns 78%):**
A trade sale at 12.5x implies an EV of $525M, equity of $345M and $269M to the fund in around nine months, conditional on a Phase 1 antitrust clearance that is not certain. A sponsor-to-sponsor at 11.0x gives $462M, $282M of equity and $220M to the fund in six months, with the highest completion certainty but the lowest proceeds. An IPO at a 13.0x headline, marked at a 10% listing discount, is an effective 11.7x -- $491M of EV, $311M of equity, $243M attributable -- but only about $73M is realised at listing and $170M sits behind a 180-day lock-up at market risk. A continuation vehicle priced at 11.5x gives $483M of EV, $303M of equity and $236M attributable, with rolling LPs staying invested.

Against these, holding two more years to $52M of EBITDA at 11.5x, with net debt down to $150M, produces $448M of equity and $349M to the fund -- $242M in present value at a 20% cost of equity. The hold case is within 10% of the best exit route, so this is a decision about certainty and fund life rather than headline value. The recommendation is a trade sale as primary with sponsor-to-sponsor as fallback, switching if antitrust review is signalled as a Phase 2.