Trade Sale

The sale of a private company to another company or to a financial buyer such as a private equity fund.

Example

A software startup acquired by a larger competitor for cash and shares.

Important

It is the most common successful exit for venture-backed companies, and the price is reduced by debt, costs, preferences and escrow before shareholders are paid.

Related terms

• Distribution Waterfall — The order in which sale proceeds are paid out: typically debt, transaction costs, preferences and then remaining shareholders.
• Escrow Holdback — A portion of a sale price held back by the buyer or an agent for a set period to cover possible claims under the sale agreement.
• Earn-Out — A portion of a purchase price paid contingent on the acquired business achieving agreed performance targets after closing, rather than paid in full at the time of sale.

Lessons that explain it

• Acquisition, listing, secondary sale or wind-down - most exits are the first and the last — Private investments return money through a sale of the company, a public listing, selling shares to another investor, or a wind-down. Public listings are the most visible and among the least common outcomes. (9 min)
• Small shareholders mostly sign, but what they sign matters — An acquisition involves warranties, indemnities, escrow and a drag-along that can compel minority holders to participate. Understanding the documents before signing is the last chance to know what you are agreeing to. (11 min)

All 578 terms in the Investing glossary