On Secondary Buyouts

59 Pages Posted: 23 Sep 2013 Last revised: 9 Oct 2015

See all articles by Francois Degeorge

Francois Degeorge

University of Lugano - Faculty of Economics; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

Jens Martin

University of Amsterdam - Finance Group

Ludovic Phalippou

University of Oxford - Said Business School

Date Written: June 16, 2015

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.

Keywords: Private equity, buyouts, performance, secondary buyouts

JEL Classification: G23, G24

Suggested Citation

Degeorge, Francois and Martin, Jens and Phalippou, Ludovic, On Secondary Buyouts (June 16, 2015). Journal of Financial Economics (JFE), Forthcoming; ECGI - Finance Working Paper No. 384; Swiss Finance Institute Research Paper No. 13-48. Available at SSRN: https://ssrn.com/abstract=2329202 or http://dx.doi.org/10.2139/ssrn.2329202

Francois Degeorge

University of Lugano - Faculty of Economics ( email )

via Giuseppe Buffi 13
CH-6904 Lugano
Switzerland
41 58 666 4634 (Phone)
41 58 666 4647 (Fax)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Jens Martin

University of Amsterdam - Finance Group ( email )

Roetersstraat 18
Amsterdam, 1018 WB
Netherlands

Ludovic Phalippou (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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