ZBB 2020, 36

RWS Verlag Kommunikationsforum GmbH & Co. KG, Köln RWS Verlag Kommunikationsforum GmbH & Co. KG, Köln 2199-1715 Zeitschrift für Bankrecht und Bankwirtschaft ZBB 2020 AufsätzeTjark C. Eschenröder*

Secondary Buyout Performance

There is an ambivalent discussion about the performance of secondary buyouts (SBOs): Private equity (PE) sponsors often assume an underperformance of SBOs compared to primary buyouts (PBOs). However, the share of SBOs grew significantly to more than 50 percent of all buyouts in 2018. This paper contributes to solve this apparent contradiction. It analyses the performance of SBOs compared to PBOs based on a dataset of 295 UK portfolio companies which underwent back-to-back buyout rounds. The analysis of the total sample shows that SBOs perform worse or at least not better than PBOs. A more detailed analysis of subsamples reveals that SBOs may be attractive PE targets: The underperformance is driven by size and time effects. SBOs perform worse at growing small and medium-sized portfolio companies and are inferior at developing the profitability of medium-sized companies. Interestingly, the underperformance diminishes in the course of time; SBOs do not perform differently compared to PBOs for the time after the financial crises. Considering the limited supply of investment opportunities for PBOs, I find that well-chosen SBOs outperform the remaining, low performing PBOs. Therefore, SBOs are not means of last resort for PE firms. SBOs have a promising potential of value creation, which may partly explain the significant growth of SBO deals.


  • I. Introduction
  • II. Theoretical Background
    • 1. PE Performance
    • 2. Performance SBOs
  • III. Data
    • 1. Explanation of the Sample
    • 2. Calculation of the Relevant Variables
  • IV. Performance Difference between PBOs and SBOs
    • 1. Variable Selection
    • 2. Summary Statistics
    • 3. Methodology
    • 4. Results
    • 5. Size Effect
    • 6. SBO Improvement over Time
    • 7. Robustness Checks
  • V. PBOs versus SBOs – a Nuanced Picture
  • VI. Conclusion
Research Assistant at the Department of Banking, University of Cologne

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