SA国际传媒

An exit occurs when a private company is either acquired or goes public. Types of exit strategies include IPOs, SPAC deals, direct listings, buyouts, mergers or acquisitions.

In the event of a startup鈥檚 exit, the amount invested in the company by angel investors, venture capital investors and private equity firms becomes liquid. If successful, those investors recoup not only their initial investment, but also a significant return, which depends on the stage in which they invested and the amount of equity they owned.听

The most common exit strategy for private venture-backed companies is via a merger or acquisition deal (M&A). Other exit strategies include going public and listing shares through an initial public offering (IPO).听

An initial public offering, or IPO, is the first sale of a privately held company鈥檚 stock to the public. Once a company is public, its shares are listed on a stock exchange.听

The two major public stock exchanges in the U.S. are and the (NYSE). Outside the U.S., major stock exchanges include the , and Tokyo Stock Exchange, operated by the

There are several ways for a company鈥檚 shares to become publicly traded that are similar to an IPO, but not exactly the same. These include via:

• A direct listing, in which the company goes public without raising capital through the sale of new shares;
• A special-purpose acquisition company (SPAC), a shell company formed specifically to bring private companies to public markets.
• A reverse merger, in which a private company acquires a publicly traded shell company to become publicly traded without going through the traditional IPO process.

Read more about different types of exits further below.

The largest initial public offerings, or IPOs, by venture-backed U.S.-based companies are: the IPO in 2012, valued at $104 billion (the company is now called ); , valued at $82.4 billion in its 2019 IPO; and , valued at $66.5 billion in its 2021 IPO.

The most valuable IPO stock honor belongs to , the Saudi Arabian oil and gas company that went public in December 2019. The company raised about $25.6 billion, making it the largest IPO in history.

Dozens of companies had IPOs and other public market debuts in the past several years. The largest public market debut in recent years was cryptocurrency exchange . Coinbase鈥檚 2021 debut was not an IPO, but a direct listing that valued it at $86 billion.听

The largest U.S.-based IPOs in the past three years include ; valued at $66.5 billion in its 2021 IPO; rental accommodation company , valued at $47 billion in its 2020 IPO; delivery company , valued at $39 billion in its 2020 IPO; robotic process automation company , previously headquartered in the U.K. and valued at $35 billion in its 2021 IPO; and stock brokerage company , valued at $32 billion in its 2021 IPO.听

Other notable companies that had IPOs were Beijing-based video platform , South Korea-based e-commerce company , and Beijing-based ride-sharing platform . All of these companies had IPOs in 2021.听聽

Many other unicorn companies, including , , , and , went public in 2021 via SPAC mergers.

The biggest company that had its IPO in 2020 is , which raised $3.5 billion in its offering. Other notable companies that had their IPO in 2020 include , , and .

The largest venture-backed company that had an IPO in 2019 is , with its $82.4 billion valuation. Other tech companies that had IPOs in 2019 include , , , and .

Companies go public for many reasons. One of the main benefits of IPO exits include providing access to capital and liquidity for existing shareholders such as founders, employees and early investors.听

Publicly traded companies are also able to use their shares as capital for making acquisitions.

A public listing also generally instills more confidence in the company and its stakeholders, because joining the public markets requires a dependable market-determined valuation and the company has met certain regulatory requirements and undergone scrutiny by financial authorities.

While there aren鈥檛 many announced upcoming IPOs in the pipeline in 2023, there are hundreds of unicorn companies expected to exit in the next few years.

The most anticipated potential upcoming IPOs include payments company 鈥檚 IPO, data platform company 鈥� IPO, fintech 鈥檚 IPO, and fast fashion giant ‘s IPO.

is reportedly considering a 2023 IPO. The IPO could also happen within the next year.

filed paperwork to take chipmaker , which it owns, public in 2023. The Arm IPO could happen this year.

Public companies may offer stock options, restricted stock units or other equity-based compensation programs to attract and retain talented employees.

Granting these incentives is a valuable tool for recruiting top talent and aligning employees’ interests with those of the company and its shareholders.

IPO valuation multiples are financial ratios used to estimate the value of a company when it goes public. These ratios help investors and analysts compare the company’s financial performance to similar companies in the market.听

Valuation multiples play an important role in IPO pricing by providing a framework for investors and underwriters to assess the value of a company and determine a suitable IPO share price range.

During the IPO process, investment banks and underwriters analyze the company’s financials, growth prospects, industry comparables and market conditions. Valuation multiples such as the price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio and other relevant criteria are considered to gauge how the company’s valuation compares to its peers and overall industry.

Valuation multiples help investors understand how the company is priced in relation to its financial performance, but are just one part of the overall evaluation process. Other factors such as market conditions, investor demand and growth prospects also impact the IPO price.

Read more about how IPOs are priced.

Some of the common elements to calculate valuation of a company include an analysis of the company鈥檚 financial statements and comparable companies. In addition to an estimate of the present value of the company’s expected future cash flows, it takes into account the prevailing market conditions and investor sentiment as well as input from the investment banks or underwriters managing the IPO process.

While these methods and considerations are typically used in combination to arrive at an IPO valuation range, the final valuation decision is often made by the company and its underwriters.

Some of the most common exit strategies for private equity firms include IPOs, a sale to a strategic buyer (M&A) or to another private equity firm (secondary buyout), recapitalization (issuing new debt or equity), a management buyout, a dividend recapitalization (taking a significant dividend payment), or liquidation.

A merger and an acquisition both result in the combination of two companies into a single entity, but there are some key differences. A merger is typically a combination of two equal partners, while an acquisition is the takeover of one company by another.听

With a merger, the resulting company typically has a new name and a new corporate identity.

An acquisition occurs when one company buys another company and assumes control of its operations. In that case, the acquired company often becomes a subsidiary of the acquiring company and the acquiring company gains control over the subsidiary鈥檚 operations, management and assets. The acquired company often retains its original name and brand.

The largest acquisitions of U.S.-based private companies include cloud design software company , acquired by in 2022 for $20 billion, and messaging app , acquired by (then called Facebook) in 2014 for $19 billion.听

In a SPAC deal, a special-purpose acquisition company (SPAC) combines with a privately held company in order to give the private company status as a public company on an exchange such as or . The process typically begins with a SPAC raising capital via a public offering of its own shares. The proceeds from that offering are then used to acquire a private company, often a venture-backed startup. A SPAC merger is sometimes called a blank-check merger.听

A SPAC merger鈥檚 main advantage compared to a traditional IPO is that it enables a company to go public faster and at lower cost. However, SPACs are generally considered to be riskier for investors than an IPO, and regulatory requirements can be more complex.

SPAC mergers became popular in 2020 and 2021, with companies including , , , , and taking that route to the public markets. SPAC deals were especially popular as a way to take capital-intensive businesses such as electric-vehicle startups public faster, and with fewer constraints, than via the traditional IPO process. However, many companies that went public via SPAC in recent years have seen their stock performance struggle on the public markets.

Read all of our SPAC coverage.

The largest SPAC merger to list was Singapore-based transportation company in 2021, valued at $40 billion. In the U.S., health care repayment company listed in 2022 at a value of $32.6 billion, and electric-vehicle company in 2021 at a value of $24 billion.听

A direct listing is another way for a private company to go public. A direct listing enables a company to make its shares directly available to the investing public without the underwriting process or restriction of IPO pricing that comes with a traditional IPO.听

A direct listing is typically faster, easier and less expensive than an IPO as it doesn鈥檛 require an underwriting process or fees and faces fewer regulatory requirements. A direct listing also offers companies more flexibility in how much stock they list, who can participate and the IPO share price.听

A direct listing does have disadvantages compared to an IPO, however. Because it doesn鈥檛 involve underwriters, a direct listing has no minimum guaranteed price for the shares and doesn鈥檛 enjoy the 鈥渟tamp of approval鈥� the underwriting process brings. There may also be liquidity concerns, since a direct listing doesn鈥檛 involve the issuance of new shares. A direct listing may also suffer from lack of investor awareness, since it doesn鈥檛 have large underwriting firms promoting the offering and drumming up investor interest.

The largest direct listings are cryptocurrency exchange , valued at $86 billion in its 2021 direct listing; gaming company , which went public in 2021 at a value of $30 billion, and music sharing company , which listed in 2018 at a value of $29.5 billion.听

Find all our coverage on IPOs, M&A, SPACs and public markets here.

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