Definition
realized investment
Returns
on private equity investments are created through
a combination of these three methods: debt repayment
or cash accumulation through cash flows from operations,
operational improvements that increase earnings
over the life of the investment and multiple expansion,
selling the business for a higher multiple of earnings
than was originally paid.
As
such private equity investments are typically realized
through one of the following avenues:
- an
Initial Public Offering (IPO) – shares of
the company are offered to the public, typically
providing a partial immediate realization to the
financial sponsor as well as a public market into
which it can later sell additional shares;
- a
Merger or Acquisition – the company is sold
for either cash or shares in another company;
- a
Recapitalization – cash is distributed to
the shareholders (in this case the financial sponsor)
and its private equity funds either from cash
flow generated by the company or through raising
debt or other securities to fund the distribution.
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Private Equity and Venture Capital Glossary
