Exit of Last Resort? Empirical Evidence on the Returns and Drivers of Secondary Buyouts as Private Equity Exit Channel

22 Pages Posted: 28 May 2012

See all articles by Ann‐Kristin Achleitner

Ann‐Kristin Achleitner

Technische Universität München - Center for Entrepreneurial and Financial Studies

Oliver Bauer

Technische Universität München (TUM)

Christian Figge

Technische Universität München - Center for Entrepreneurial and Financial Studies

Eva Lutz

Heinrich-Heine-Universität Düsseldorf, Endowed Chair in Entrepreneurship/Entrepreneurial Finance

Date Written: May 25, 2012

Abstract

Despite an increasing importance of secondary buyouts in the private equity market, little is known about the perspective of the seller and his motives for choosing this exit type. Do private equity firms have a clear pecking order regarding the exit channels for their portfolio companies? Is a secondary buyout only an ’exit of last resort’? And furthermore, have company or market related factors an influence on the decision to pursue a secondary buyout? This article’s aim is to answer these research questions. Based on a proprietary dataset of 1,112 leveraged buyouts exited in North America or Europe between 1995 and 2008, the authors empirically analyze the return potential of different exit channels including public, private and financial exits. They find that based on the realized returns, there is no clear pecking order of exit types. Secondary buyouts, i.e. financial exits, deliver returns that are equally attractive to the ones achieved through public exits. In addition, the authors empirically assess the relationship between the likelihood to choose a financial exit and company as well as market related factors. They show that portfolio companies with a higher lending capacity are more likely to be exited via a secondary buyout. Furthermore, the liquidity of debt markets and the amount of undrawn capital commitments to the private equity industry increase the probability of a secondary buyout. Overall, the authors conclude that private equity firms engage in market arbitrage between debt and equity as well as private and public equity markets.

Keywords: private equity, exits, secondary buyouts

JEL Classification: G11, G24, G34

Suggested Citation

Achleitner, Ann-Kristin and Bauer, Oliver and Figge, Christian and Lutz, Eva, Exit of Last Resort? Empirical Evidence on the Returns and Drivers of Secondary Buyouts as Private Equity Exit Channel (May 25, 2012). Available at SSRN: https://ssrn.com/abstract=2066514 or http://dx.doi.org/10.2139/ssrn.2066514

Ann-Kristin Achleitner

Technische Universität München - Center for Entrepreneurial and Financial Studies ( email )

Arcisstr. 21
Munich, D-80290
Germany
+49 89 289 25181 (Phone)

Oliver Bauer

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, 80333
Germany

Christian Figge (Contact Author)

Technische Universität München - Center for Entrepreneurial and Financial Studies ( email )

Arcisstrasse 21
Munich, 80333
Germany
49-89-2892190 (Phone)

Eva Lutz

Heinrich-Heine-Universität Düsseldorf, Endowed Chair in Entrepreneurship/Entrepreneurial Finance ( email )

Universitätsstr. 1
Duesseldorf, 40225
Germany

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