Performance Dependency of Secondary Buyouts on Primary Buyouts

38 Pages Posted: 4 Jan 2019

See all articles by Tjark Eschenröder

Tjark Eschenröder

University of Cologne - Department of Banking

Thomas Hartmann-Wendels

University of Cologne - Department of Banking

Oliver Laubach

University of Cologne - Department of Banking

Date Written: December 20, 2018

Abstract

Secondary buyouts (SBOs) represent up to 52 per cent of the total private equity activity. Recent studies generally found an underperformance of SBOs compared to primary buyouts (PBOs), making this high share of SBOs questionable insinuating that these investments are much more driven by the appetite to invest than by rational investment decisions. This paper analyses the dependency of the performance of SBOs on the performance of the preceding PBOs. The dataset of the underlying study consists of 295 PBOs and 295 subsequent SBOs in the UK. We investigate the value drivers for all buyouts in general and for PBOs and SBOs separately. We find that PBOs and SBOs have strongly differing value drivers. Further, we analyse the effect of the firm development during the PBO on the value creation of the SBO and thereby identify several selection criteria of PBOs and their influence on the performance of SBOs. We find that value drivers, e.g. a superior EBITDA margin development, are not a sign of a potentially low further value creation but rather trigger the SBOs performance. We further analyse the value drivers of the SBO conditional on the identified selection criteria. When investigating the required action for each selection criteria, we find that those conditional value drivers also differ strongly among the criteria. The paper offers a grid of parameters and its dependencies for analyzing investment pre-decisions for SBOs based on the performance of the previous PBOs.

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

JEL Classification: G11, G23, G24, G34

Suggested Citation

Eschenröder, Tjark and Hartmann-Wendels, Thomas and Laubach, Oliver, Performance Dependency of Secondary Buyouts on Primary Buyouts (December 20, 2018). Available at SSRN: https://ssrn.com/abstract=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

Oliver Laubach

University of Cologne - Department of Banking ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
111
rank
239,529
Abstract Views
291
PlumX Metrics