What is typically included in the exit strategy of private equity firms?

The exit strategy of private equity firms typically includes dividends or recapitalizations as a means of realizing returns on their investments. Private equity firms aim to improve the companies they invest in and ultimately seek to exit those investments profitably. Recapitalization involves restructuring a company's capital structure, which may include issuing new debt or equity to raise funds. This process can allow private equity firms to take cash out of the business while still maintaining a stake in its potential future growth.

Additionally, dividends can provide immediate returns to the private equity investors, acting as a mechanism for realizing some value while still involved as stakeholders in the company. These strategies are critical components of the financial planning and value creation processes that private equity firms undertake to maximize their return on investment before exiting, whether through a sale of the company or another financial event.

Other options might not align with the traditional objectives of an exit strategy. While transforming a company into a franchise or acquiring additional companies may be part of a growth strategy, they do not directly relate to how private equity firms realize their returns upon exiting an investment. Similarly, increasing operational costs counteracts the goal of maximizing profitability, which is essential for a successful exit.