Secondary Buy-Outs: Passing the Parcel or Creating Value with Distinct Value Creation Strategies?

Abstract

This paper studies the growth strategies, the operational performance and the deal performance of 357 world-wide, back-to-back buyout cycles, containing both, the Primary Buyout (PBO) and the consecutive Secondary Buyout (SBO) of the same portfolio firm between 1997 and 2012. I find that inorganic growth strategies are significantly more often conducted in SBOs. There is no evidence that the operational growth is different for PBOs and SBOs, when controlling for the financial crisis. However, SBOs show a significantly lower expansion of the operational margin. Lastly, I find that deal returns are comparable for both buyout cycles, and that buy-and-build strategies are an important return driver in SBOs. My results suggest, that the focus is especially on efficiency improvement during the PBO, while in SBOs the strategy is to further grow the business of an already efficiently managed portfolio firm.