CFA Level I · CFA Level I Exam · Investments in Private Capital: Equity and Debt
A private equity fund sells its stake in a portfolio company to a larger company in the same industry. Compared with an initial public offering (IPO), this exit route is most likely to:
A trade sale to a strategic buyer most likely allows a full exit at closing, and the buyer may pay a premium for synergies. An IPO instead brings listing and disclosure requirements and usually only a partial, staged exit because of lock-up periods.
- Arequire the portfolio company to meet public listing and disclosure requirements
- Bgive the fund a lower probability of a complete exit at the time of sale
- Callow a full exit at closing, and the buyer may pay a premium for synergiesCorrect
Explanation
A trade sale to a strategic buyer usually transfers the whole stake at closing, and the buyer may pay for expected synergies. An IPO typically involves lock-ups and staged selling, and it requires listing and disclosure compliance.
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