PE firms tap IPOs as M&A exit market remains challenging

Private equity firms are turning to public markets for exiting portfolio companies as traditional M&A routes face a shortage of strategic buyers, according to a Wall Street Journal report. Historically, IPOs were secondary exit options for sponsors, who typically favored private sales. However, the reopening of the US IPO market is making listings more attractive, especially for firms under pressure to generate distributions.

The IPO market has seen a resurgence in 2026, with strong investor appetite for businesses linked to AI, aerospace, and defense. Several private equity-backed companies, such as Jersey Mike’s, Reformation, and Csquare, have already gone public. In 2026, there were 21 US-listed IPOs involving private equity-backed companies, exceeding the 20 recorded in 2025 and representing the highest annual pace since 2021.

While IPOs offer potential liquidity, they do not guarantee immediate exits due to lock-up agreements and sponsors' long-term stake reductions. Madison Dearborn Partners, for example, took Aevex Aerospace public in April after unsuccessful private sale attempts. Public listings also expose sponsors to market volatility. Despite this, private sales remain the preferred outcome for many private equity firms, with only about 1% of exits being public listings since 2022.

The use of IPOs is part of a broader expansion in liquidity tools for sponsors and investors, alongside continuation vehicles, GP-led secondary transactions, and fund-to-fund transfers. IPOs are often pursued as part of dual-track processes, complementing private sales. The revival of public markets provides private equity firms with an additional exit valve, though risks remain, as seen with Clarios, which abandoned its US listing plans due to market volatility.