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Secondary Buyout Transactions – 2006 to 2012 YTD (as of 28th August 2012)

by Jessica Hull

  • 30 Aug 2012
  • PE

Secondary buyouts are a type of leveraged buyout in which a private equity firm sells their stake in a portfolio company to another private equity firm. In the past, secondary buyout transactions have been undertaken to give the private equity firm instant liquidity. The purchasing private equity firm believes there is extra growth potential and significant gains are still expected from the investment. Last year, the highest number of secondary buyout transactions was recorded since 2006, with 335 secondary buyout deals valuing at $65.2bn. This is in comparison to the previous peak in secondary buyouts in 2007, which surpassed the aggregate secondary buyout value of 2011 by over $25mn, but not by number. During 2007, 330 secondary buyout deals were recorded with an aggregate value of $92.1 million.

Over the last few years, the proportion of value that secondary buyout deals make up in the buyout market has increased almost year on year, apart from a dip in 2009 when the markets were in the midst of the global financial crisis. In 2006, secondary buyouts made up 9% of the buyout market, which rose to 14% in the following two years. This took a slight tumble to 12% in 2009, but the proportion doubled into 2010. This has gradually increased from 2010 to 2012 YTD, in which the proportion of aggregate value attributed by secondary buyouts in the buyout market is currently a third, which is the highest recording since 2006. This surge in the proportion of secondary buyouts is likely to be attributed to the current uncertainty in the financial markets, which makes it more difficult for GPs to deploy capital effectively through other types of leveraged buyout deals. Therefore, private equity firms see secondary buyouts as an attractive investment opportunity where there is still an ample amount of value-added to be gained.

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