What can private equity do now to finish strong?

The EY Private Equity Exit Readiness Study 2025 explores key exit activities, their impacts on exit valuations, execution speed and more. 

Three questions to ask:

• How can private equity firms address the most critical exit readiness challenges? 
• How can portfolio companies present their data, KPIs and reporting metrics to provide robust support for their equity story?
• How can talent be addressed in advance of an exit to assess if the management team and CFO have the right experience to face buyer challenges? 

Private equity firms globally have amassed more than 30,000 assets totalling US$4.1 trillion waiting to be monetized, including 35% of assets that have been held for more than six years¹. Faced with significant geopolitical volatility influencing the macroeconomic landscape on an almost daily basis, firms are operating in a uniquely uncertain market causing many to slow or pause deal activity. But amid the uncertainty, there are definite steps firms can take to optimize their exits when the time comes.

The EY Private Equity Exit Readiness Study 2025 showed 78% of firms reported holding assets beyond their typical investment horizon of five or more years and 46% of firms exiting five or fewer assets since 2018, with a strong imperative to return liquidity back to investors (exit routes defined as trade, secondary, IPOs, carve-outs or continuation funds). 

Most firms are optimistic that the market will settle soon. When asked about when they planned to exit a given asset, most reported within a year (33%) or one to two years (55%). Exit readiness activities play a critical role in optimizing returns. 

Strategic buyers, private equity and IPO investors have tightened diligence standards after sluggish exit years and a high-rate environment. More than ever, firms understand the importance of exit preparations and are dedicating the time and resources to prepare assets for sale, with 88% of firms reporting undertaking targeted exit readiness activities during an asset’s hold period. They start thinking about the exit plan early, with close to half starting exit readiness or preparedness assessments 12 to 24 months in advance of sale.

Critical exit challenges

Firms face key exit challenges, particularly with data readiness. 65% report issues with fully capturing value creation initiatives in the exit EBITDA and 41% of respondents report a lack of access to data granularity to support the equity story. The finance function particularly comes under pressure. Talent considerations, particularly for the finance function, also play a role in exit success.

Management preparation and CFOs with exit experience are critical to an efficient exit process.

Having the right leadership talent in place with prior exit experience can be critical to a successful sale process. This is particularly true for the finance function, with 63% of respondents citing CFO lacking prior experience with selling a business as a top challenge to exit. 

There are also challenges with finance function staffing. After years of talent shortages and cost-cutting initiatives, many organizations face bandwidth challenges. Forty-six percent of respondents cited insufficient resources as a roadblock to a smooth exit process. 

Four ways private equity firms can mitigate talent challenges: 

1. Conduct early management rehearsals to stress test the equity story and assess where the leadership may need to be strengthened.
   
   
2. Quantify the operational capabilities that led to value creation in the current hold period, creating a next-owner playbook to properly aid in the next investor underwriting assumptions.
   
   
3. Enhance the management halo with good preparation for potential bidder challenges. This is especially important as Private equity buyers focus on the management bench and retention when evaluating top quality assets.
   
   
4. Build financial planning and analysis capabilities around forecasting, KPI aggregation and analysis and strategic planning. Augmenting Financial Planning and Analysis capabilities in the short-term around an exit can also positively impact ROI.

The road to optimizing exit valuation is paved with insightful and precise data.

Portfolio companies have a lot more data today, adding to the complexity of incorporating the decisions that go into running the business. It's easy to get lost when trying to present this data for the purpose of a transaction. In more buoyant markets due to the overall activity levels, data was important but could be managed around the deal. Now, buyers expect a deeper level of analysis and insights into a business. A sure way to impact transaction outcome is to provide the requisite level of data granularity for investors to assess the next cycle of returns.