Exit Strategy: Overlooked Issue of Equity Investment

As aforementioned on the Capital Corp Merchant Banking corporate website, we have the ability to structure the financing of a project with an equity investment.  However, one important issue of such an investment that is often overlooked by a project promoter is the mechanism of exit to investors.  In other words, how will investors/owners cash-in their investment?

Exit routes in private equity can be public offerings, the re-purchase of stock by managements, or private sales.  Of the three, private sale is by far the most preferred because of the ease of the transaction and payment in cash/marketable securities.

No matter one's preference, a promoter must understand that his/her exit strategy has to be seen as obtainable in the eyes of the investor.  For instance, stating that a company will go public always sounds great but reaching that goal is another matter entirely.  One must consider if there is even a willing investment market for the type of project and if so how the regulatory challenges will be addressed.

So, again, a project promoter who offers to use a public offering, sale, or buy-back as a way to recoup Capital Corp Merchant Banking’s investment (or that of any other funder, for that matter) will be deemed as acceptable on paper. However, the burden is on the promoter to prove that his/her exit strategy is not only viable but that it can and will succeed.

Respectfully,

Capital Corp Merchant Banking