3 strategies to make the best exit for private equity players

Investors recognize that Southeast Asia is one of key markets in the decade. Stable GDP growth, political stability, and rising stock markets drive growth of the middle class and massive spending. Major players of the western countries aim to get their foothold in the region. Some of regional and local private equity (PE) players aim to make exit of their investments. AEC in 2015 onward should create opportunity for companies with good business model to expand regionally for capturing 600 population and over 100 million middle class by 2016. I am an optimistic view that it should be the right timing on getting into the region of key players. There are several alternatives of making the best exit for PE players – going initial public offering (IPO), trade sale, or management buyout. Each one has pros and cons on pursuing it.

IPO should be best suits when PE is the minority stakes in the company, saying 10-15%. Once IPO the dilution of new shares will bring its stake down to around 10% or lower. Then, it is easier to release to the market. However, the option may limitation of the silent period and the stock market volatility. I think it should be best if its underlying business relies more on the region or domestic consumption.

Trade sales to a strategic buyer is a good option if PE have significant stakes in the company. With a good planning to seek for strategic acquirers, PE should be in the best position to drive its valuation. However, the option has a downside on number of acquirers in the unfavourable time which is not the case in this period.

Management buyout is another option for PE to sell its stake to current management when there my need more years before it is ready to IPO. During the good time, many banks both domestic and international are more optimistic to provide loans to management to buy out PE stakes.

In addition, PE firms have more opportunity to invest in the region as entrepreneurs aim to expand their business rapidly. By relying only on traditional financing of bank loans, their businesses may miss opportunity. However, PE should be carefully concentrate on their business models before committing investments.