A private equity company generally receives the large majority
of its returns on an investment upon exit of the investment, and as
such the exit is an important part of the life-cycle of a private
equity transaction. The most commonly used methods available to
private equity investors to exit their investments are described
Initial public offering (IPO)
Under an IPO, the shares of the investment are listed on a stock
market and sold to the public. In most IPOs, the private equity
company exits the investment by selling its shares in the market
after the shares are listed. This exposes the returns on the
investment to share price fluctuations.
Under a trade sale, the private equity company sells all of its
shares of the investment to a third party often operating in the
same industry as the company itself (i.e., strategic
buyers). This exit method permits a private equity company to exit
the investment completely and immediately upon the closing of the
In a secondary buyout, the private equity company sells its
investment to another private equity company. A private equity
company may want to proceed with this exit method if it is looking
to shorten the life-time of the investment or it is not able or
willing to finance the investment any further but the investment is
not at a suitable stage for an IPO or trade sale. There may be
other reasons for a private equity company to utilize this exit
method, which, like a trade sale, permits a private equity company
to exit the investment completely and immediately upon the closing
of the exit transaction.
In a leveraged recapitalization scenario, the private equity
company will re-leverage the investment. One method of completing a
leveraged recapitalization is for the company to raise money by
borrowing money from a bank or issuing debt securities and using
the money to repurchase its shares from the private equity company.
Under this exit method, the investment is able to extract cash
from, while retaining an interest in, the investment.
According to a recent report entitled Mass Exodus – Private equity exits in
2015 of Toppan Vite, in partnership with MergerMarket, the
outlook for IPO's as a private equity exit method is uncertain
in light of current economic conditions, which are causing
uncertainty in the equity markets. Private equity firms that wish
to use this as an exit method will need to wait for the economic
outlook to stabilize.
In addition, according to the report, certain industry experts
believe that the high exit volumes and values in recent times have
been fuelled, in part, by low interest rates and robust debt
markets, which provide capital for strategic buyers. One industry
expert believes that so long as the lending window stays open,
trade sales will continue to be high.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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