Private Equity Exit Strategies and Profitability During the Global Pandemic: Evidence from Around the World

Abstract

AbstractPrivate equity (PE) exit strategy is important for investors as a planned and effective exit strategy improves the chance of realizing higher profit. In this paper, we examine how PE exit strategies are being affected by the on‐going global pandemic. The current COVID‐19 pandemic has created unprecedented exogenous shocks to nearly every economy and it is important to see how this uncertainty affects economic activities such as the PE exit decision. Using 20 years of PE fund data from across 79 countries, we find that the current COVID‐19 global pandemic has significantly affected the PE exit decision and the effect is stronger than that of the recent financial crisis. Out of all the exit strategies, acquisition is the most popular, and COVID‐19 exerts a significant negative impact on the others. We also find that COVID‐19 has negatively affected deal values across all the exit strategies, limiting the profit potential for investors. Moreover, the paper provides evidence that PE investors tend to wait for a good time to exit rather than rushing to exit during an uncertain time such as this global pandemic. Our results are robust for various alternative econometric specifications.