It is important for any investor to divest its holdings and exit in the most profitable manner. As such, exit strategies are a very critical part of undertaking investments, for both private equity players and strategic business investors. The investment horizon is typically pegged to 5-7 years. That said, exit mechanisms are not always time bound and are often articulated as remedies available to the investor, owing to default / breach by the investee company or key promoters, thus triggering a possibility of an early exit. It is therefore important to efficiently understand and negotiate the exit rights of an investor (preferably, at the term sheet stage), to ensure maximum returns.
Exit mechanisms unequivocally represent an investor's confidence in the market. In the last couple of years, India has witnessed varied ups and downs in the exit curve, with exits being on a splurge in 2018 and hitting a low in 2019, attributable to the slowdown in the economy.
In this article, we have identified some common and viable exit strategies (based on the current market trends), to help investors realize full returns on their investment:
Key Exit Strategies:
In conclusion, while other exit routes (as discussed above) are commonly trending in the market, exit via a buyback or implementation of put options are highly negotiated rights. Given the dynamic nature of the Indian economy and the changing market trends, it is key for the investors to articulate flexible exit strategies which do not restrict them to take advantage of other viable exit opportunities, which may present itself over the course of time.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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