Whether you’re planning an IPO exit strategy or taking part in a strategic sale, here’s what you need to know.
Key takeaways
When preparing for an exit, portfolio companies need to:
- Increase resources.
- Build a framework for compliance.
- Make sure they have the right tech stack.
Prepare to scale talent
Build a robust compliance process
Make sure you have the right tech stack
Find the right partners for your exit strategies
FAQ: Private equity exit strategies
In 2024, the market began to warm as U.S. private equity-backed deal volume reached a projected $838.5 billion—a 19.3% increase from 2023. This resurgence is driven by a more favorable financing environment and a rebound in large private equity deals.
Despite these improvements, the deal backlog remains high and hold periods continue to rise. The result: Private equity investors are thinking about value creation on a longer timeline. They’re preparing portfolio companies for a variety of scenarios to increase the likelihood of a successful exit.
The good news is that, whether you’re planning for an initial public offering (IPO) or a strategic sale, the groundwork remains the same. You still need to boost operational efficiencies, fortify management teams, and leverage technology to streamline processes.
Here are some key strategies for people, processes, and technology in a dual-track strategy.
Prepare to scale talent
Startups tend to operate with lean teams to get the most efficiency and value, especially during their initial growth phases. When you’re preparing for an exit, however, whether it’s an IPO or a strategic sale, you need to think differently about resources. In the short term, you may need to add skilled individuals who can manage increased regulatory and operational demands. Managed services can be key in areas like procure-to-pay and accounts receivable, offering not only expertise but also cost-efficiency by using offshore or nearshore teams. Bringing on leaders and staff with public company experience can also help manage private expectations and public market demands. Companies that proactively comply with the Sarbanes-Oxley Act (SOX) framework tend to have stronger internal controls, which can enhance market trust and potentially lead to better IPO pricing.
Build a robust compliance process
At many small-to-midsized enterprises, processes remain undocumented and informal, crafted for speed and efficiency rather than compliance. But adhering to standards such as SOX are essential if you’re preparing for an IPO. This transformation involves not just rethinking existing workflows but also how you bring on new talent, particularly those with public accounting backgrounds. In the first quarter of 2023, material weaknesses reported by companies increased by 25%, underscoring the critical need for robust ways to identify and address internal control deficiencies early in the IPO preparation process. This is also true in a strategic sale, especially if the acquirer is a public company that needs to comply with SOX.
Make sure you have the right tech stack
Technology, particularly enterprise resource planning (ERP) software, is essential for improving the efficiency of your operations. But the needs of a company evolve dramatically as it prepares for an exit. Small companies often operate without integrating their systems. As companies scale, it’s crucial to make sure that customer relationship management (CRM) platforms, consolidation applications, and identity governance and administration (IGA) tools integrate smoothly with ERPs. For instance, a company preparing for an IPO needs to make sure its technology stack can handle larger volumes of transactions and comply with regulatory requirements for reporting. Integrating these systems leads to more efficient invoice processing and accurate quarterly reporting. Both are essential.
Preparing for an exit is a big lift, and there are other key considerations, including those around technical accounting and financial reporting for both internal and external stakeholders. We’ll explore these considerations in our next article and offer more strategic insights and tactical tips to help you prepare to exit in the 2025 and 2026 environment.
Find the right partners for your exit strategies
As exits gain momentum in 2025, portfolio companies poised for an IPO or a strategic sale need to focus on strengthening their people, processes, and technology. By proactively addressing these areas and finding the right partners, business can increase their attractiveness to public and private market buyers.
Want to learn more? Contact us to connect with a private equity or IPO expert today.
FAQ: private equity exit strategies
How do private equity firms create value for exit transactions?
With longer hold periods and a high deal backlog, private equity investors are shifting focus to long-term value creation. They’re preparing portfolio companies to handle a variety of exit transactions, whether that’s an IPO or a strategic sale, to improve the chances of success.
What should private equity portfolio companies do to get ready for an IPO or sale?
To prepare for a successful exit, companies need to focus on three main areas: people, processes, and technology.
Why is talent scaling so important for exit preparation?
As companies prepare for an exit, they need to think beyond lean teams. Hiring experienced professionals who understand public company demands is crucial. This helps manage expectations and prepares the business for public market realities.
How does compliance factor into preparing for an IPO?
Many smaller companies don’t have formal processes in place, but now is the time to get serious about meeting standards. Strengthening internal controls early on helps prevent issues later and increases the likelihood of a smooth IPO process.
What kind of tech improvements do companies need for an IPO?
A well-integrated tech stack ensures smoother operations as you prepare for the exit. This includes making sure your ERP, CRM, and other tools work well together to handle more transactions and meet regulatory requirements for reporting.
