What are the best indicators for when to exit an investment?

These are true, however, you also need to apply your personal time horizon to the calculus on when to exit. Most business owners have lived through boom and bust cycles. If you're at the tail of a boom cycle, even if you missed the top, you'll be better rewarded than waiting five more years to go through the down turn, flatten and then hit 2-3 more years of an up cycle to get back to what you can get now. Having done M&A for more than 30 years, I have witnessed owners exhuberent during the boom, thinking it will go on for ever and then getting their business valuations cut in half and being stuck for the rest of the cycle to play out and get another couple years of positive trend.

Private equity strategy that results in a. some capital protection b. desired yield at end of term (economic value) c. IRR metrics met d. increased debt seems like a winning exit formula

Correct. Some of the primary methods used to help increase or establish the exit value: - Perform an Exit Readiness Scan - Focus on Increasing EBITDA/Earnings Growth & Cash Flow Generation - Reviewing your Multiple Expansion

As an investor, you always want to sell when your value add is complete. What this means, is that it's ok to sell despite the business not being at peak performance. For example, if you are an investor that focuses on growth, being focused on sales channel optimization, customer acquisition, and optimal product portfolios means you will have done your part in increasing the company's value. Leaving additional multiple expansion opportunities for the next investor, e.g. an operational efficiency-focused PE, can make this investment highly attractive for the next buyer. Focus on your strength and exit swiftly.

Rarely do we find a "founder owned business" that wouldn't benefit from the professionalization that comes from a disciplined private equity partner. Build the professionalization plan, put it in place and watch it work. Top managers are driving growth in each division and you're much better positioned to handle the next cycle. You want to sell into strength. If your current plan isn't working, get back to the drawing board and put a plan in place that drives growth and then benefit from that growth a couple years. Show how KPI trends are moving in the right direction. Big ones include GM expansion, full management team in all key roles, top line and bottom line growth, normal levels of capex are happening.

Just like you would hire an accounting and legal firm to help value your business when getting ready to sell, its important to hire a team of professionals who can help walk through your exit options and find buyers. Many times business owners have spent their whole lives working in and on their business. In many cases the sale is their retirement, so its important that we weigh all of their options carefully before proceeding.

In navigating the labyrinth of the "perfect exit", one cardinal rule should not be overlooked: vigilance towards the regulatory and political climate. It's a simple but often underestimated truth that the tide of regulation and politics can either catapult a company to new heights or drag it into the abyss. These forces have the power to radically transform not only the value landscape but also the exit paths of your investment.