Why I Believe the True Value in Private Investments Lies in the Exit, Not in a Secondary Market

Private company valuations are typically based on the latest estimate of fair value, akin to  mark‑to‑market—they rarely price in the potential strategic premium that a buyer might pay. That premium only manifests at exit. 

Industry reports suggest fair values are often well below actual exit prices:

• One private equity institution recently reported that exits deliver an average uplift of ~25% over NAV (net asset value, probably based on fair value).
• Another disclosed that its average exit premium over carrying value has been around 52% since inception.
• A report using a large data set showed private equity buyouts exiting at 0.1x to 1.1x higher EBITDA multiples than portfolios held without exit.

Sources also report that secondary deals are typically at a discount to estimated fair value:

• One source calculates that secondaries often trade at discounts of around 10–30% to NAV, driven by sellers’ liquidity needs and lack of control.
• In 2024, a leading journal reported that secondary sales averaged about 25% below NAV.

In short, secondary market prices usually hover around fair value or below, while true exit prices—including rich strategic premiums—are significantly higher.

Private equity isn’t simply buying low and selling high. It’s a multi‑year, orchestrated process designed to align incentives and optimise growth towards an exit:

1. Strengthening leadership: We help founders and executives mature into roles that can scale a business.
2. Sharpening strategy: We work on refining a company’s business model so it’s poised for high growth in the hands of the next owner.
3. Executing acquisitions: We often build scale and value through bolt‑on deals and create a platform for future acquisitions.
4. Aligning incentives: There’s huge value in building excitement and engagement within the management team on the journey towards exit.

These crucial steps rely on coordinated ownership and timing—they peak precisely at exit. If shareholders begin selling in dribs and drabs via PISCES, that coordination frays. Fragmented ownership erodes:

• Strategic momentum, as management may lose sight of the long‑term objective.
• Pricing leverage, as auctions and full‑company sales drive competition and premiums.
• The team’s focus on building to exit, rather than periodic portfolio adjustments.

Our own experience at Rockpool supports this. Our track record shows an average equity exit at more than 3 times cost, even after accounting for failures along the way. It also shows exits being achieved at multiples 3 to 4 points higher than entry – in other words, we might buy at 6 times profit and sell at 10 times profit. Don’t forget that capital is at risk and past performance is not a reliable guide to the future.

If the entry multiple is any indication of the level that a secondary market trade might happen at, then investors choosing to sell early could be missing out on these significant uplifts.

I’m not dismissing secondary platforms like PISCES. They may serve certain investors seeking liquidity before an eventual exit. The fact that you normally can’t sell private company shares when you want to is a big drawback for many investors. But for those of us focused on delivering true private equity value, we know:

• Selling early may mean missing out on the real value.
• The collective alignment that delivers meaningful upside only happens at exit.