Secondary Buyouts: Operating Performance and Investment Determinants

Stefano Bonini

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Private Equity and Venture Capital Financial Markets and Investment Strategies Corporate Finance and Governance

Abstract

Secondary buyouts (SBOs) now represent over 60% of the overall buyout activity. In this paper, I investigate the possible determinants of such spectacular growth. I find that first round buyers generate a large and significant abnormal improvement in operating performance. In contrast, SBO operating growth is not different from that of its peer group. Returns to secondary private equity (PE) investors are positive, but significantly lower than those of first round buyers. I examine several alternative drivers of SBOs and find that favorable credit market conditions and PE reputation drive secondary investment volume.

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References

1993The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems 1991Earnings Management During Import Relief Investigations 1996Detecting abnormal operating performance: The empirical power and specification of test statistics 1996Grandstanding in the venture capital industry 1989The effects of management buyouts on operating performance and value 2013Financial statement analysis and security valuation 2009Leveraged Buyouts and Private Equity 1989Management Buyouts: Evidence on Taxes as a Source of Value

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2018Sustaining the Buyout Governance Model: Inside Secondary Management Buyout Boards

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