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December 17, 2006 Private Equity - Where's the Exit?
This weekend, Michael Flaherty of Reuters wrote an interesting article "Money drying up for some investors in buyout firms" addressing some questions we have had for some time now. Specifically, when and how are private equity firms going to unwind their wild acquisition spree, at a profit?
Private equity firms are buying companies with the fervor of just putting money to work, without seemingly paying attention to any valuation metrics. This has caused us to ask, "How are they going to exit at comparable multiples? And when?"
However, Flaherty, approaches this from a different angle. Private equity firms have tapped out their checking accounts and turned to LP's for another round. This would not be a problem if the LP's had some tangible returns to measure their next investment against. But with no exits, LP's are a bit leery of doubling down based on firm's buying strategies. Who can blame them?
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