Keep Taking the Private Equity Medicine? How Operating Performance Differs between Secondary Deals and Companies that Go to Public Markets
43 Pages Posted: 12 Mar 2012 Last revised: 22 Jul 2013
Date Written: July 22, 2013
Although the number of secondary buy-out deals has increased noticeable in the last few years, firms exited through a secondary buy-out (secondary firms) clearly underperform firms turned public (IPO firms) in the first three full years after the exit. Evidence suggests that this underperformance can be partially explained by a longer holding period in the previous deal and by the lack of experience of the purchasing private equity investor but also shows that secondary firms invest much less than IPO firms after the exit. Given the overall results of this paper it seems premature to conclude that the increase in secondary buy-out deals and so the increase in the ultimate holding periods of firms undergoing private equity medicine is a sign that Private Equity is a superior long-term organizational form.
Keywords: Secondary buy-out, IPO, private equity, operational performance
JEL Classification: G11, G24, G34
Suggested Citation: Suggested Citation