A growing number of European scaleups have voiced their intentions to make a public debut. The question is, when?
Exit activity has been particularly muted in 2024, as companies wait for the macroeconomic climate to improve. Despite a slight recovery between the end of Q3 and Q4, H2 left a €15bn gap compared to H1 when it came to M&A among European startups, according to Sifted’s H2 2024 review — making any potential exits even more hotly anticipated.
But timing isn’t everything when it comes to an exit, IPO or not. As well as waiting for the right market conditions, achieving a desirable outcome takes a lot of financial preparation and strategically weighing up all of the exit routes available. “There’s optionality for founders now,” says Mike Turner, London partner at law firm Latham & Watkins. “They have to think through the opportunity and where their future ought to lie — in the public markets or the private markets, and within the private markets who the right buyer might be.”
From staying private for longer to leveraging secondaries, here’s how European founders are rethinking exit strategies for 2025 and beyond.
Staying private for longer
With increasing levels of growth-stage capital available, staying private for longer is an option for companies that want to refine their operations and achieve sustainable growth before putting themselves up for sale.
We’re seeing a lot of interest from private equity, and especially private-equity backed companies looking to make bolt-on acquisitions.
“For the last two years, there’s been a lot of right-sizing going on,” says Edward Keelan, a partner at Octopus Ventures focused on B2B software, referring to companies that have laid off staff and pivoted towards more profitable and sustainable revenue streams since the market correction in 2023. This has, naturally, resulted in a reduced number of exits, he says.
Now companies are returning to growth, “we’re seeing a lot of interest from private equity, and especially private-equity backed companies looking to make bolt-on acquisitions,” Keelan says. “Those acquirers aren’t looking for cash burning companies, they are looking for companies that are growing and cash flow break-even.”
Leveraging secondaries
With companies delaying their exit plans, secondaries have become a more popular route for generating liquidity. “Because the M&A market hasn’t been that buoyant, exit timelines have been pushed out and secondaries are seen as an opportunity for early-stage investors and employees to get liquidity,” says London-based Latham & Watkins partner Shing Lo.
“There’s a significant increase in demand for large, meaningful employee secondaries,” adds Turner. Although discounted, these transactions allow companies to reset ownership structures and attract new validation capital without the pressure of a full exit. They also provide founders the opportunity to partially de-risk their stakes, taking money off the table while retaining control of their companies.
Mergers, acquisitions and more
Acquisitions are the most common exit path for tech companies, as corporates, private equity and even other tech firms look to capture the value of fast-growing startups. “Not every company is suitable for the public markets,” says Lo.
I get a sense we are beginning to reach the end of a period of uncertainty.
While a Q4 spike wasn’t enough to turn around M&A’s fortunes for the entire year, there has been an uptick, according to Sifted data. “I get a sense we are beginning to reach the end of a period of uncertainty, and people are being more realistic about what their options are,” says Turner.
For founders, the decision often comes down to the future they envision: as the CEO of a highly scrutinised public company, or building inside another company. Lo says some founders keep options open by pursuing multiple exit strategies at once. “They could do a dual track, with an M&A track on one hand, and an IPO on the other, and work out which is the best value for the company and its shareholders, and therefore the most credible path to take,” she says.
Ready for the IPO window to open
Still, for companies that have achieved significant scale, IPOs appear to be very much on the cards still. In addition to companies that have publicly stated their plans for a near-future listing, Lo says Latham & Watkins has had a surge of mandates for deals in preparation for the IPO window reopening, which she expects in late 2025 or early 2026.
It’s about being realistic about when the IPO market will open and being ready to jump.
IPO prep is not a quick process — taking as long as 18 months — and companies are expected to meet stricter performance metrics than ever following the market correction, which exposed the risks inherent in non-profit-generating companies. “Before, if you got to $10m ARR and you were growing quickly enough, you were an IPO candidate. In today’s world that sounds absolutely ludicrous,” says Keelan. Today, companies that have achieved or have a clear path to profitability, and presence in markets like the US with deep customer bases, are likely to be more attractive to public market investors.
Turner says startups interested in an IPO are choosing to prepare now, so they can be ready to go as soon as market conditions improve — or a flurry of competitors start hitting the market. “It’s about being realistic about when the IPO market will open and being ready to jump,” he says.
Read the orginal article: https://sifted.eu/articles/european-founders-exits-options-brnd/
