Lump sums are given to people who have been investing in the business for a long period of time but would want to end their involvement already and this is considered as one of the greatest financial rewards for private investors. There are different exit strategies that investors make use of that is why the amount of lump sum will depend on this.
Exit strategies and what you need to know
A Private investor has different exit ways to choose from which has its own advantages and disadvantages. Here are the most common ones:
What public flotation is
What is the meaning of trade sale?
How does management buyout work?
A management buyout is known as a transaction of which the company’s management team will be given the chance to purchase the operations and assets of the business that they are managing. This option is considered to be very attractive to investors if there is a compromise of allowing the investor to continue in receiving money from the shares for a couple of years since the business will be passed on to people who are well acquainted with it, therefore, all future revenues will surely be maximized.
Rather than being an employee, the manager can now be the owner because of a management buyout, however, it is not easy to calculate the value of an investor’s share, provide the buyout plan of the business, and maximize sale price for the investment that is why many things are really at stake here. From the outset of the investment, a private equity investor should take steps to control all of the disadvantages that he might have to face since there are a number of different factors which can greatly affect the price that should be achieved. Some of the factors that can greatly affect the price that the investor will be able to come up in proposing for the disposal of his investment includes:
Providing the right information
In order for a private investor to maximize the return of his investment, he should make sure to come up with a good exit strategy such as acquiring some information about how the business had been functioning well through the years, and the projections and prosperity of the business for the future as well.
How did the other shareholders do their exit?
In case other shareholders are also interested in making their own exit, the value of the investment will surely increase, however, if they will decide on selling it to a single shareholder, then the value of the private investor will then be decreased because of the influence of other investors.