Table of contents. 1 Introduction 1. 2 Background 15

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1 Table of contents 1 Introduction Framework and intent of the work Research approach Research design framework Research approach and procedure Structure outline 12 2 Background Private Equity Definition Evolution of the private equity market Stages of private equity financing Private equity market structure Market trends Hedge funds and private equity Corporate governance aspects Performance of private equity as an asset class Leveraged buyouts Definition and reasons The role of the interest rate environment for leveraged buyouts Leveraged buyout principles and consequences Market overview and history Buyout market trends Performance of the leveraged buyout market Divestments of portfolio companies Exit phase in the Venture Capital Cycle Potential divestment routes 118

2 VIII Table of contents 3 Theoretical foundation and literature review Agency theory as an overall framework for private equity exits Underlying theoretical approaches timing of exits Value-add and monitoring cost concept Asymmetric information and certification Grandstanding Resource dependence Underlying theoretical approaches choice of exit route Agency theory Asymmetric information Grandstanding Existing studies on portfolio company exits Framework literature Studies on IPO exits Other forms of exit Exit timing and process Theoretical approaches relevant for exits Other aspects related to private equity research Tabular summary of existing studies Key studies on the choice of exit routes Key studies on timing of exits Studies on exit process The exit process: Reducing exposure to a portfolio company Exit process overview Process initiation and design Pro-active portfolio management Process objectives Role of investment banks and advisers Allocation of roles and tasks relationship of parties involved Single route or multi-track process 208

3 Table of contents IX 4.3 Comparative characteristics of exit options Trade sale and secondary buyout M&A exits Initial Public Offering stock exchange listing Buy-back Recapitalisation Relative importance of exit options Review of transactions by exit alternative European stock exchange environment for IPOs Evaluation of exit options A note on valuation methods Type of consideration received Post-closing conditions: Warranties and indemnities Other stakeholders interests The importance of executive management in the exit process Empirical analysis: Exit behaviour and efficiency Research objectives Research methods rationale Data description Survey design and other data sources Target universe Characteristics of participating buyout investors Variables for statistical analysis Timing of portfolio company exits Tested decision factors Hypotheses Empirical results Summary and discussion Choice of exit route Tested decision factors Hypotheses Empirical results Summary and discussion 315

4 X Table of contents 5.6 Investor characteristics, exit preferences and process management styles Exit route preferences Exit process duration Consideration of executives aspirations the impact of management Relative proportion of exit routes The significance of corporate governance aspects Summary and discussion Multi-track exit processes Assessment of multi-track exit processes Tendency to conduct dual- or multi-track exit processes Key determinants underlying decisions for multitrack exits A note on the downsides the risk of discouraging bidders Summary and discussion Changes in the private equity environment and exit behaviour Research rationale and hypotheses Data sources and procedure Data characteristics Analytical assessment Discussion of findings Specific limitations Exit trends in the context of recent buyout funds performance Limitations of analysis Summary and discussion 366

5 Table of contents XI 6 Conclusion 371 Appendices 377 List of exhibits 377 List of abbreviations 383 Survey questionnaire 385 List of interview partners 389 List of buyout firms participating in survey 390 Bibliography 391 Abstract 413 Biography 415

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