GPs eye the exits by year-end as tax changes loom: panel

Potential tax increases from the Democrat-controlled Congress are spurring GPs to look for the exits for their portfolio companies before year-end, according to a panel at the PartnerConnect East 2021 conference, held last week at the Harvard Club in New York.

However, the markets might just be too crowded for managers to get deals done, one of the panelists said.

“[It’s] going to be another busy year next year, so much demand right now to sell companies before the tax law changes as they want to lock in these lower tax rates,” the panelist said.

“But I have heard people being told that after Labor Day, don’t even think about selling or starting a fund – it is way too busy right now and you will have a hard time being seen – we are advising you wait until first or second quarter of next year.”

The panel talked about the exit markets as the year ends and moving into 2022. (The conference was under Chatham House Rule, meaning the information can be used, but the speakers’ identities had to be kept confidential).

In the crowded markets, GPs have more options than ever to achieve exits for their portfolio companies. Beyond traditional M&A or public offerings, GPs can also consider SPACs deals or even secondary processes, the panelists said.

“Sometimes the timing for an exit can be right with the market but maybe because of the business side of things, GPs want more options as sometimes the life of the fund might determine when the best time to exit is,” one of the panelists said.

GPs are always on the look-out for alternative ways to monetize their portfolios, the second panelist said.

“GPs have all these tools in their toolkit and some of those tools were on the backburner but now they are coming to the forefront, like SPACS and secondaries,” he said. “GPs are starting to sell in the secondary market and also come up with a tender with LPs to have a secondary buyer come in and price the portfolio – there are no shortage of options.”

This story initially appeared in affiliate publication PE Hub.