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Fund Managers under pressure: Rationale and Determinants of Secondary Buyouts

Author

Listed:
  • Sridhar Arcot

    (ESSEC Business School)

  • Zsuzsanna Fluck

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • José-Miguel Gaspar

    (ESSEC Business School)

  • Ulrich Hege

    (IHEC - Institut des hautes études commerciales (Carthage, Tunisie) - UCAR - Université de Carthage (Tunisie) = University of Carthage)

Abstract

The fastest growing segment of private equity (PE) deals is secondary buyouts (SBOs)—sales from one PE fund to another. Using a comprehensive sample of leveraged buyouts, we investigate whether SBOs are value-maximizing, or reflect opportunistic behavior. To proxy for adverse incentives, we develop buy and sell pressure indexes based on how close PE funds are to the end of their investment period or lifetime, their unused capital, reputation, deal activity, and fundraising frequency. We report that funds under pressure engage more in SBOs. Pressured buyers pay higher multiples, use less leverage, and syndicate less suggesting that their motive is to spend equity. Pressured sellers exit at lower multiples and have shorter holding periods. When pressured counterparties meet, deal multiples depend on differential bargaining power. Moreover, funds that invested under pressure underperform.

Suggested Citation

  • Sridhar Arcot & Zsuzsanna Fluck & José-Miguel Gaspar & Ulrich Hege, 2015. "Fund Managers under pressure: Rationale and Determinants of Secondary Buyouts," Post-Print hal-01453163, HAL.
    • Handle: RePEc:hal:journl:hal-01453163
    DOI: 10.1016/j.jfineco.2014.08.002
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    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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