Exit Planning Takes Priority in a Softening Market

As valuations soften amid ongoing market volatility, private equity fund managers are turning to more strategic exit planning. Coming off a year of explosive M&A and exits in a high-valuation environment, fund managers absorbing inflation and interest rate data may delay exits: U.S. private equity exit value declined to $90.1 billion in the first quarter of 2022, a 57.5% drop from the previous quarter, according to PitchBook. In a market that continues to be dynamic and unpredictable, portfolio managers will need to prioritize several aspects of exit planning to ensure they generate attractive returns and, by extension, secure follow-on fundraising.

Maximizing Returns Through Due Diligence

The pace at which deals were taking place — and the faster deal timelines — in 2021 have resulted in a heightened awareness of risks that may not be revealed until after deal close. Today, prospective buyers want sellers to be transparent and thorough in their assessment and disclosure of potential risks. Prior to a transaction, the sell-side will want to ensure that they’re doing the most they can to bring the highest value to the sale. By performing proper due diligence ahead of a sale, the sell-side may not only maximize their returns, but also accelerate the pace at which they’re able to close the deal. With the market showing signs of softening, it’s worth considering if there’s the same sense of urgency to close deals that there was as compared to the record-setting pace we saw in 2020 and 2021. However, it’s still critical to take the proper steps ahead of a sale to set both sides up for success.