Performance Dependency of Secondary Buyouts on Primary Buyouts

39 Pages Posted: 4 Jan 2019 Last revised: 13 Sep 2019

See all articles by Tjark Eschenröder

Tjark Eschenröder

University of Cologne - Department of Banking

Thomas Hartmann-Wendels

University of Cologne - Department of Banking

Date Written: December 20, 2018

Abstract

Secondary buyouts (SBOs) represent more than 50 percent of the total private equity (PE) buyout activities. However, in academia and practise, a potential underperformance of SBOs compared to primary buyouts (PBOs) is discussed. Therefore, it is all the more important to further understand how the value in SBOs is driven and what makes a potential SBO attractive to look at in a due diligence process. This paper describes the dependency of SBOs on the preceding PBOs based on a dataset of 295 PBOs with their consecutive SBOs. It analyses the impact of the performance of a portfolio company during a PBO on the performance of the following SBO and derives value drivers and their influence on the SBO. Based on the performance of the value drivers during the PBO five criteria are identified for a pre-selection of SBOs. There is not a single perfect strategy for all SBOs, but the value drivers during the SBO differ strongly depending on the identified selection criteria. Generally, general partners (GPs) do not only use complementary skillsets, i.e. they do something completely different across buyout rounds. Additionally, they work on similar value drivers but with a different focus than the previous investor, i.e. they work differently on similar areas of improvement.

Keywords: Private Equity, Secondary Buyout, Value Drivers, Investment Selection

JEL Classification: G11, G23, G24, G34

Suggested Citation

Eschenröder, Tjark and Hartmann-Wendels, Thomas, Performance Dependency of Secondary Buyouts on Primary Buyouts (December 20, 2018). Available at SSRN: https://ssrn.com/abstract=3304592 or http://dx.doi.org/10.2139/ssrn.3304592

Tjark Eschenröder (Contact Author)

University of Cologne - Department of Banking ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Thomas Hartmann-Wendels

University of Cologne - Department of Banking ( email )

Albertus-Magnus-Platz
D-50923 Cologne
Germany

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