Private Equity Lemons?Evidence on Value Creation in Secondary Buyouts

Ann‐Kristin Achleitner

60 citations0/0 files storedEuropean Financial Management

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

Abstract

Abstract 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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References

1970The Market for "Lemons": Quality Uncertainty and the Market Mechanism 1958The Cost of Capital, Corporation Finance and the Theory of Investment 2008The cost of capital, corporation finance and the theory of investment 2005Private Equity Performance: Returns, Persistence, and Capital Flows 1999Eclipse of the Public Corporation 1989The effects of management buyouts on operating performance and value 2009Leveraged Buyouts and Private Equity 2004The risk and return of venture capital

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2013Do Private Equity Returns Result from Wealth Transfers and Short-Termism? Evidence from a Comprehensive Sample of Large Buyouts 2015What determines the exit decision for leveraged buyouts?2013Fund Managers Under Pressure: Rationale and Determinants of Secondary Buyouts 2018Sustaining the Buyout Governance Model: Inside Secondary Management Buyout Boards 2016The Effects of the Specialization of Private Equity Firms on their Exit Strategy

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