8 minute read 14 Dec 2023

Three questions to help rethink your exit strategy now

By Konstanze Nardi

EY Global Private Equity Exit Readiness Leader

Experienced professional with a demonstrated history in private equity transactions. Passionate about equality and diversity of thought in the services.

8 minute read 14 Dec 2023

As deal flow starts to pick up, private equity firms have an opportunity to create maximum value, but action is needed.

In brief

  • Private equity firms need a strong equity story and robust data for successful exits in a challenging economic landscape.
  • Adapting exit strategies to changing market dynamics is crucial.
  • Robust data enables valuation, risk assessment and builds credibility, while prioritizing AI and sustainability aligns with investor expectations.

Private equity firms tend to focus on optimizing returns, particularly driven by a successful exit. With recent macroeconomic headwinds – such as supply chain disruptions, inflationary environments and increasing financing costs – successful exits have become harder to achieve.

Given this context, those that have a clearly articulated equity story and show clear opportunities for the next buyer will be able to move faster and increase transaction certainty. Their plans must be supported by the credible and granular data that investors demand and driven by a management team focused on executing the strategy and meeting financial targets.

However, existing plans might be losing their relevance. What’s different with this cycle is that the world has changed so significantly since the start of the decade. Value creation strategies put in place before the COVID-19 pandemic, the rise of artificial intelligence (AI) and the evolution of the ESG agenda will likely need a fundamental review.

Macroeconomic headwinds appear to be stabilizing and we’ve seen notable large initial public offerings launch recently. Given exit preparations across financial and non-financial due diligence can take between 12 and 18 months, here are three questions private equity leaders and their portfolio companies’ management teams should have front of mind now.

1. How is your exit plan changing?

The best exit plans are formulated at the deal stage and periodically re-evaluated. Private equity firms that prioritize the end goal as their guiding principle from the outset put themselves in the best position to maximize value at exit.

To date, private equity firms have adopted several innovative strategies to overcome a challenging exit environment. These include partial exits, continuation funds and NAV loans. However, our latest research1 shows that nine out of 10 company CEOs intend to pursue a transaction in the next year; a clear sign that green shoots financial markets are beginning to emerge.

Many are thinking creatively about their exit routes and potential buyers. Economic fluctuations, evolving geopolitical landscapes and industry-specific developments can all impact the feasibility of different exit routes, such as a public offering, strategic sale, or secondary transaction. These options must be reviewed continuously to make sure that the preferred strategy aligns with market dynamics.

Management teams and operating partners must remain equally discerning in their pursuit of value creation initiatives prior to exiting, pursuing only those that are geared specifically toward maximizing the asset’s appeal to buyers. With holding periods now at their longest on record, buyers also increasingly want to know what opportunities there are for them to keep growing the business. As new opportunities continue to arise during the exit preparations phase – such as add-ons or carve-outs, new market expansion, cost optimization, pricing/margin enhancement – each needs to be evaluated in terms of its contribution to optimizing returns.

Many factors come into play here, from tax considerations and earnings adjustments to a relevant ESG value narrative and a compelling vision that appeals to current and future talent. A well-timed exit strategy should enhance employee retention and attraction, from key executives to skilled workers. By prioritizing human capital, private equity firms can maintain or even enhance the company's workforce, a vital asset during negotiations.

Embracing this mindset will allow private equity firms to continuously evaluate and adapt their exit strategies and guarantee that ongoing value creation initiatives are seamlessly integrated to support the overall exit plan.

2. What are you doing to make your data more robust?

In an uncertain and changing world, data analytics is even more important to close information gaps and give potential buyers more confidence. It also enables a sales process to move faster, which matters even more at a time when buyers are being highly selective.

Here are three reasons why robust data is critical:

  1. It affects everything from valuation and risk assessment to negotiations and stakeholder management. In a competitive marketplace, it makes a seller powerful and credible. Data can provide the edge needed to outmaneuver other sellers in the same sector and allow for a swift and optimal exit.
  2. It sets the stage for a transparent transaction, fostering trust among all parties. It enables you to engage and align all stakeholders – across management, employees, investors and advisors – around your objectives and expectations.
  3.  It is essential for accurately valuing the company, for exploring differing divestment opportunities and exit routes and considering it from the lens of potential buyers. Robust data can help in accurately assessing all the risks associated with the business, including operational risks, market risks and financial risks.

Weak or unreliable data can raise concerns among potential buyers or investors, cause delays, lead to lower valuations, or sometimes even result in a no deal. Do you have credible, granular financial and operational data to explain revenue and margin trends, substantiate your equity story and valuation adjustments to support critical assumptions in your forecasts?

3. Where is your thinking on AI and sustainability?

There are multiple emerging factors affecting the way private equity needs to think about value creation and exit, but two need to be highlighted: AI and sustainability.

We’re still in the relatively early days of generative AI (GenAI) adoption, but it’s clear this will be one of the transformational innovations of our lifetime. As the risks and opportunities around AI continue to unfold, buyers will ask for a clear and considered view on the impact of AI on your portfolio companies’ strategies.

Our research2 shows that most CEOs acknowledge the potential disruption of GenAI and recognize the need for a proactive response: 88% are making or planning significant investments; 64% are trying to use GenAI to transform their organizations. With AI developing at such speed, it’s critical that this planning and investment keeps pace and that CEOs think ahead to what AI might make possible in the months and years ahead.

Likewise, sustainability is becoming one of the defining issues of our time. It’s now an integral part of value creation strategies across the private equity sector and investors are asking increasingly challenging questions about what private equity leaders are doing to help portfolio companies address ESG-related challenge and opportunities and what measurable impact this is having.

All stakeholders increasingly want clear and credible answers on specific questions about progress and impact. That requires strategies and plans that have defined timelines and outcomes with transparent reporting.

Looking ahead

Private equity firms can create a powerful competitive differentiator by excelling at the process of getting a company ready for exit.

An “exit-first mindset” should be a foundational element of any value creation strategy. Those that perform a comprehensive exit readiness scan, curate the strongest possible exit narrative for their chosen strategy and support it with robust data, will be ideally positioned to harness the macroeconomic tailwinds of tomorrow. They will be able to increase transaction certainty and move at pace. 

  • Sales to strategics dominate, while IPOs are beginning to show signs of life

    General partners have been navigating challenging market conditions marked by higher interest rates, constrained liquidity, economic volatility and low market sentiment. These factors have created a challenging environment for deal making and contributed to extended holding periods, but exit activity is now picking up.

  • Show image description#Hide image description

    This chart highlights exit activity relative to 2019 levels, with 1.00 representing the 2019 benchmark level and the deal value and count (number of exits) lines representing activity indexed to that level. Note, these only include significant exits, those over US$100m. The chart shows how exit activity bottomed out to near COVID-19 pandemic levels earlier this year and is now on an uptick.

  • LP distributions as a percentage of NAV have fallen to record lows

    Distributions to LPs as a percentage of net asset value (NAV) have fallen to lows not seen since the global financial crisis. This has affected fundraising, as partners tend to reinvest distributions. This will impact the ability of some firms to invest in new opportunities, although the industry as a whole has plenty of dry powder ($1.3t).

  • Show image description#Hide image description

    This chart depicts the amount distributed to limited partners (LPs) as a percentage of the net asset value of the portfolio. Distributions this year have reached a level not seen since 2009, during the Global Financial Crisis. Historically, for every US$100 in asset value, US$24 have been distributed to LPs on average. This year, that amount has dropped to US$7, comparable to 2009 where the amount distributed fell to US$8.


To achieve successful exits, private equity firms must craft a compelling equity narrative supported by granular and credible data. They need to adapt value creation strategies to account for the evolving landscape shaped by factors such as a pandemic, advancements in AI and the growing significance of ESG considerations. Robust data is crucial for accurate valuation and risk assessment. Embracing the impact of AI and sustainability will resonate with discerning buyers. Excelling at the exit process provides firms with a distinct competitive edge in today's dynamic market.

About this article

By Konstanze Nardi

EY Global Private Equity Exit Readiness Leader

Experienced professional with a demonstrated history in private equity transactions. Passionate about equality and diversity of thought in the services.