Summary
The paper, titled “On Secondary Buyouts”, examines the increasing trend of private equity firms selling companies to each other in secondary buyout (SBO) transactions. The authors find that SBOs underperform, particularly when made by firms under pressure to spend capital, but SBOs performed as well as other buyouts when no such pressure existed. Moreover, SBOs between firms with complementary skillsets outperform other buyouts. The paper also examines the controversial issue of Limited Partner (LP) overlap in SBOs and finds that despite the appearance of additional transaction costs for LPs on both sides of the deal, this is not the case. The authors argue that the presence of LP overlap can actually be an opportunity for investors to optimize their choice of funds by investing in those with complementary skills, thereby potentially increasing their expected returns.
