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Secondary Buyouts

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  • Stefano Bonini

Abstract

In this paper, we show that secondary buyouts (SBOs) do not generate a signifi?cant improvement in the operating performance of target companies. We collect deal-level infor mation on 2,911 buyouts between 1998 and 2008 and gather detailed fi?rm-level ?financial and accounting information on 163 companies targeted by two consecutive leveraged acquisitions in the period 1998-2008. We show that ?first-round buyers generate a large and signi?cant ab normal improvement in operating performance and efficiency. In contrast, SBO investors do not show statistically signi?cant evidence of incremental contribution to the performance oftarget companies whereas they increasing leverage and squeeze-out. Returns to PE investors are signifi?cantly lower in secondary transactions and are mostly determined by large dividend payments. Market-wide SBO activity is signifi?cantly determined by favorable debt market conditions and PE reputation. Additionally, large and high-value deals are more likely to be exited through an SBO. We test a possible collusive motive for this class of deals, fo?nding some support for this conjecture.

Suggested Citation

  • Stefano Bonini, 2012. "Secondary Buyouts," Working Papers 441, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  • Handle: RePEc:igi:igierp:441
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    File URL: ftp://ftp.igier.unibocconi.it/wp/2012/441.pdf
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    References listed on IDEAS

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    1. Cumming, Douglas & Siegel, Donald S. & Wright, Mike, 2007. "Private equity, leveraged buyouts and governance," Journal of Corporate Finance, Elsevier, vol. 13(4), pages 439-460, September.
    2. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58.
    3. Richard Harris & Donald S. Siegel & Mike Wright, 2005. "Assessing the Impact of Management Buyouts on Economic Efficiency: Plant-Level Evidence from the United Kingdom," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 148-153, February.
    4. Palepu, Krishna G., 1990. "Consequences of leveraged buyouts," Journal of Financial Economics, Elsevier, vol. 27(1), pages 247-262, September.
    5. Phillippe Desbrières & Alain Schatt, 2002. "The Impacts of LBOs on the Performance of Acquired Firms: The French Case," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(5&6), pages 695-729.
    6. Demiroglu, Cem & James, Christopher M., 2010. "The role of private equity group reputation in LBO financing," Journal of Financial Economics, Elsevier, vol. 96(2), pages 306-330, May.
    7. Nikoskelainen, Erkki & Wright, Mike, 2007. "The impact of corporate governance mechanisms on value increase in leveraged buyouts," Journal of Corporate Finance, Elsevier, vol. 13(4), pages 511-537, September.
    8. Muscarella, Chris J & Vetsuypens, Michael R, 1990. " Efficiency and Organizational Structure: A Study of Reverse LBOs," Journal of Finance, American Finance Association, vol. 45(5), pages 1389-1413, December.
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    Cited by:

    1. Arcot, Sridhar & Fluck, Zsuzsanna & Gaspar, José-Miguel & Hege, Ulrich, 2015. "Fund managers under pressure: Rationale and determinants of secondary buyouts," Journal of Financial Economics, Elsevier, vol. 115(1), pages 102-135.

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