Study on Exit Mechanism for Private Equity Investment/ETUDES SUR LE MECANISME DE SORTIE POUR L'INVESTISSEMENT PRIVE

Abstract: As a new type of investment and financing method, the private equity investment saw rapid development in China. The private equity investment can not only provide financial support for enterprises, but also can improve the corporate governance structure and management level depending on the advantage of financial management and advisory experts. However, the fundamental purpose of private equity investment institutions is to obtain high income, and whether the high income can be achieved depends on the success of capital withdrawal. Capital withdrawal, i.e. exit is an important part of normal operation for private equity investment. This paper will build an exit mechanism for private equity investment through analysis of the selection of the three factors, which are ways to exit, timing of exit and degree of exit. Key words: Private equity investment; Way to exit; Timing of exit; Degree of exit Resume: En tant qu'un nouveau type de l'investissement et une nouvelle methode de financement, l'investissement prive a vu un developpement rapide en Chine. L'investissement prive peut offrir non seulement du support financier aux entreprises mais aussi ameliorer la structure de gestion de l'entreprise et leur niveau de management qui depend de l'avantage du management financier et des experts-conseils. Pourtant, le but fondamental des institutions d'investissement prive est d'obtenir des revenus eleves, et la realisation de ces revenus eleves depend du succes de retrait du capital. Le retrait du capital, c'est-a-dire la sortie est une partie importante de l'operation normale de l'investissement prive. Cet article essayera d'etablir un mecanisme de sortie pour l'investissement prive a travers des analyses sur le choix de ces trois facteurs ; les moyens de sortie, le timing de sorite et le degre de sortie. Mots-Cles: Investissement prive; Moyens pour sortir; Timing de sortie; Degre de sortie 1. INTRODUCTION The exit of the private equity investments is referring to the process that the fund managers sell the equity held by themselves through various ways to recover the investment and achieve the investment income. When it comes to the selection of the exit path, the institutional investors must consider three important factors, which are ways to exit, timing of exit and degree of exit. Based on these three factors, this paper will formulate an exit mechanism for private equity investment (Figure 1). 2. ANALYSIS OF THE OPTIONS OF THE WAY TO EXIT FOR PRIVATE EQUITY INVESTMENT 2.1 Ways to exit for private equity investment There are four main ways for private equity to exit. First is packaging the enterprises and going public (initial public offering) then the private equity investment institutions can sell the shares to the public and achieve the profits. Second is stock transfer. Third is alternative public offering, which is between the IPO and MBO financing procedures. It is a new way to exit, which can effectively make up for the drawbacks of IPO and MBO. The fourth method is liquidation. Private equity investment institutions will choose this method only when they are forced to do it. 2.1.1 IPO IPO is the abbreviation for initial public offering. The private equity investors can try their best to make the invested company go public and then the private equity is converted to public shares. After the market recognizes it, the private equity owners can sell the equity to achieve its real value. In essence, it is the process that the private equity investors promote the invested company from a private held company to a public company, and then the shares can be easily traded, which makes it available for private equity investors to sell their shares in the public market to achieve the capital gains. IPO is the most favorite way that the private equity investors and invested companies want to choose to exit, which represents the recognitions the capital market gives to the companies. …

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