Secondary Buyout

Secondary Buyout - NATIONAL PARK UTAH
Secondary buyout

A secondary buyout is the sale of a portfolio company by a private equity investor (or syndicate of investors) to another private equity investor (or syndicate of investors).

Secondary buyout is an exit alternative to trade sale or initial public offering. Secondary buyouts have become an increasingly important exit route since the late 1990s, and there are a rising number of tertiary or quaternary buyouts.

There may be several reasons for choosing this exit strategy. First, the company is not yet mature for an IPO (or a trade sale), and cannot be financed by the present investor in the future because this investor is specialized only in certain financing stages (an early-stage fund, for example, seeks to sell a company that is just moving to the expansion stage) or because the fund is nearing the end of its contractual life.

Second, in comparison to an IPO, when private equity investors retain a large fraction of their shares beyond the IPO as is usual, secondary buyout of ers the advantage of the completeness of exit.

Third, secondary buyouts can be executed faster than IPOs and trade sales. Lastly, in cold IPO markets and in times when corporations’ acquisition appetite is low, a buyout gains importance as an exit strategy.