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Exit Strategy Definition

What is an Exit Strategy?

A Brief Explanation of an Exit Strategy | Definition

An exit strategy is when a investing firm or company leaves the current market or investment it is in. In business an exit strategy can more specifically refer to when a company desires to no longer maintain ownership or management in a target firm or company and attempts to “exit” the investment. An investor holding stock in a publicly traded company can easily exit his or her investment by selling the shares on the open market.

However, exit strategies are also extremely common in private equity and venture capital where an exit can be more difficult because the target companies are private. In this case, the exit strategy is the means by which the private equity firm can receive a return on its original investment or in other words, make money. Possible exit strategies include taking a private company public through an initial public offering (IPO) or reselling the target company to another investor or competitor. In both cases the private equity firm is able to receive cash in return for selling its equity in the target company. The exit strategy enables the private equity firms to accomplish this.

Return to Private Equity Glossary

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