Initial public offering: An IPO occurs when a private company goes public by offering shares to the general public for the first time on a stock exchange. This can allow the company to raise substantial capital while providing existing shareholders with the opportunity to sell their shares. IPOs can offer high visibility and financial gain, but also involve regulatory scrutiny and increased public reporting requirements.
Acquisition: In an acquisition, another company purchases the business, allowing shareholders to sell their stakes for cash or shares in the acquiring company. Acquisitions can provide immediate liquidity and often occur when a larger company wants to expand its capabilities or market share by integrating a smaller business. This type of liquidity event can bring valuable resources and strategic advantages to the acquired company, but may result in a loss of autonomy. Acquisitions are the most common type of liquidity event. These often occur earlier in a company’s history and involve a smaller financial transaction than an IPO.
Merger: A merger is when two companies combine to form a new entity, typically with the shareholders of both businesses receiving shares in the newly formed company. While mergers can provide liquidity to shareholders, they often focus on creating synergy between the companies, which may result in new growth opportunities and an enhanced competitive position. Mergers can be beneficial for achieving economies of scale and leveraging complementary strengths with other operating businesses. Mergers may occur through special purpose acquisition companies (SPACs), which are non-operating public companies set up specifically to merge with private businesses.
Private equity buyout: In a private equity buyout, a private equity firm purchases a majority or complete stake in the company, often with the intention of restructuring and improving it before selling it for a profit. This type of liquidity event can offer a quick payout for shareholders, and it typically occurs when private equity firms identify undervalued companies or businesses with growth potential. Buyouts may lead to significant changes in company operations and strategy.
Secondary sale: In a secondary sale, shareholders, such as employees or early investors, sell their shares to other investors. This provides liquidity without the company undergoing an acquisition, IPO or merger. Secondary sales are common in private companies where there may be no immediate plans for a full liquidity event, but certain stakeholders wish to cash out their shares.