Secondary buyouts: Why buy and at what price?

Wang, Yingdi

doi:10.1016/j.jcorpfin.2012.09.002

Cited by 54 publications

(19 citation statements)

References 33 publications

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“…This allows for the first conclusive analysis of the value creation potential of SBOs using a large dataset of transaction-level data with granular value creation information to answer the questions of whether and if so how financial sponsors generate value in 'round two. ' This paper is closely related to three recent working papers that examine empirical evidence on SBOs (Bonini, 2010;Sousa, 2010;Wang, 2011). Bonini (2010) focuses on whether the operating performance of target companies is improved in an SBO and whether the impact is different from that in primary buyouts.…”

Section: Introductionmentioning

confidence: 99%

“…This trend toward SBOs has been met with a certain amount of skepticism in the practical and research communities (Bonini, 2010;Sousa, 2010;Wang, 2011) for three reasons. First, the operational value creation potential in SBOs is thought to be limited, since the first private equity sponsor will already have realised all the 'low-hanging fruit,' that is, the easily realised value creation measures with the largest impact.…”

Section: Introductionmentioning

confidence: 99%

“…First, the first financial sponsor may be forced to sell the investment early as (i) the fund approaches the end of its lifetime (Sousa, 2010), 1 (ii) the sponsor aims to generate a tangible track record to facilitate fundraising (Sousa, 2010;Wang, 2011), or (iii) the sponsor tries to achieve a stable cash flow profile (Strömberg, 2008). Second, several authors (Sousa, 2010;Wang, 2011) suggest that differing skill sets among financial sponsors allow for different value creation strategies. Both reasons support the hypothesis that SBOs still offer ample room for operational value creation potential.…”

Section: Introductionmentioning

confidence: 99%

“…Therefore we believe that Bonini's (2010) findings are not sufficient to close the chapter on SBO value creation and accept conventional wisdom yet. Sousa (2010) and Wang (2011) focus on SBOs from an exit perspective and examine the motives that drive a financial sponsor to sell to a fellow financial sponsor, as opposed to pursuing a trade sale or initial public offering. Both authors find that favourable debt market conditions increase the likelihood of an SBO, which again confirms conventional wisdom.…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Private Equity Lemons?Evidence on Value Creation in Secondary Buyouts

Achleitner

Figge

2012

Euro Fin Management

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This paper analyses whether secondary buyouts have a value creation profile and offer equity returns different from those of primary buyouts. Using a sample of 2,456 buyout transactions (including 448 secondary buyouts), we find no evidence that secondary buyouts generate lower equity returns or offer fundamentally lower operational value creation potential. However, we can show that secondary buyouts obtain 28–30% more leverage than primary buyouts, even after controlling for debt market conditions. Furthermore, we find evidence that secondary buyouts are 6–9% more expensive than other buyouts.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Private Equity Lemons?Evidence on Value Creation in Secondary Buyouts

Achleitner

Figge

2012

Euro Fin Management

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“…3 Previous studies as Sudarsanam (2005) studied the exit choice for 104 UK LBOs investments and found that operating performance, firm size, length of holding period and whether the firm belonged to the 'high-tech' industry were all significant determinants of the exit strategy. Wang (2012) also studies UK secondary exits. As Wang only has data on a relatively small number of companies she does not differentiate between IPOs and trade sales as alternative exit routes.…”

Section: Introductionmentioning

confidence: 99%

What determines the exit decision for leveraged buyouts?

Jenkinson¹,

Sousa²

2015

Journal of Banking & Finance

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a b s t r a c tHow and when to exit portfolio company investments are critical choices facing private equity funds. In this paper we analyze 1022 European private equity exits, using information on fund and portfolio company characteristics, and on conditions in capital markets. For over 43% of the exits, private equity funds sold to each other and we analyze why such secondary buyouts have gained in popularity relative to IPOs and sales to corporate acquirers. We find that the exit route depends on various portfolio company characteristics, and that conditions in the debt and equity markets have a strong influence on exit choice. The existing literature has tended to portray the IPO is the ''preferred'' exit route. However, our analysis suggests this is mistaken: private equity funds take advantage of 'windows of opportunity', and the exit route that maximizes value varies with market conditions.

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SMBOs: Buying Time or Improving Performance?

2013

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On the basis of an empirical analysis of 491 UK recent secondary management buyouts (SMBOs), we find strong evidence of a deterioration in long-run abnormal returns following SMBO deals. SMBOs also perform worse than primary buyouts in terms of profitability, labor productivity, and growth. We find no evidence for superior performance of private equity (PE) backed SMBOs, compared with their non-PE-backed counterparts. It appears that a PE firm's reputation and change in management are important determinants of improvements in profitability and labor productivity, respectively. High debt and high percentage of management equity tend to be associated with poor performance measured by profitability and labor productivity. Notably, none of the buyout mechanisms (i.e., financial, governance, operating) normally associated with performance improvements generate growth during the secondary buyout phase. The results are robust to the use of alternative performance measures, alternative benchmarks, and the possibility of sample selection bias.

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Secondary buyouts: Why buy and at what price?

Cited by 54 publications

References 33 publications

Private Equity Lemons?Evidence on Value Creation in Secondary Buyouts

Private Equity Lemons?Evidence on Value Creation in Secondary Buyouts

What determines the exit decision for leveraged buyouts?

SMBOs: Buying Time or Improving Performance?

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