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On Secondary Buyouts

Author

Listed:
  • Francois Degeorge

    (University of Lugano, Swiss Finance Institute, and European Corporate Governance Institute (ECGI))

  • Jens Martin

    (University of Amsterdam)

  • Ludovic Phalippou

    (University of Oxford)

Abstract

Private equity firms increasingly sell companies to each other in secondary buyouts (SBOs). We examine commonly expressed concerns regarding SBOs using novel and unique datasets. SBOs made by buyers under pressure to spend capital (a minority of transactions) underperform and destroy value for investors, who then reduce their capital allocation to private equity firms doing those transactions. Other SBOs perform as well as other buyouts, and investors do not penalize firms doing those. When the buyer and seller have complementary skill sets, SBOs generate significantly higher returns and outperform other buyouts. Investors do not pay higher total transaction costs as a result of SBOs, even if they have a stake in both the buying fund and the selling fund. Overall, our evidence paints a nuanced picture of SBOs.

Suggested Citation

  • Francois Degeorge & Jens Martin & Ludovic Phalippou, 2013. "On Secondary Buyouts," Swiss Finance Institute Research Paper Series 13-48, Swiss Finance Institute, revised Feb 2015.
    • Handle: RePEc:chf:rpseri:rp1348
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    File URL: http://ssrn.com/abstract=2329202
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    References listed on IDEAS

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    More about this item

    Keywords

    Private equity; buyouts; performance; secondary buyouts;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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