Chapter 4

Harvesting Private Equity Investments Through Initial Public Offering

Harry Cendrowski

James P. Martin

A “harvest” or “exit” is an event whereby the investors and management of a company sell at least a portion of their shares to public or corporate buyers. The harvest provides an opportunity for private equity (PE) funds to realize returns for their investors, while enabling managers with equity stakes to have a “liquidity event” for their shares—in other words, an opportunity to sell their shares by making them “liquid.”

Along these lines, there are three primary methods by which PE funds harvest companies: initial public offerings (IPOs), mergers, and acquisitions. The latter two exit methods (discussed in subsequent chapters) are frequently discussed in parallel and are collectively known as M&A transactions. This chapter will exclusively present an introduction to the IPO process.

Initial Public Offerings


The IPO is seen by many private firm managers and entrepreneurs as a potential milestone for their company and also for their career. There is undoubtedly a sense of prestige and pride that comes from taking a company public, as it signifies that a firm has achieved a high level of historical or expected growth. Customers and suppliers will also look at a firm differently if it has achieved public company status. Some may believe the firm to be more stable than its competitors, and, hence, they may elect to pursue more future business opportunities with ...

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