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Private Equity Lemons?Evidence on Value Creation in Secondary Buyouts


  • The authors thank an anonymous referee for valuable suggestions and are also indebted to Nico Engel for his helpful comments on earlier drafts of the paper. Furthermore, we would like to thank Alexander Maier, Manuel Molterer, Michael Reichard, and Vanessa Schmidt, who provided excellent research assistance. Correspondence: Christian Figge.


This paper analyses whether secondary buyouts have a value creation profile and offer equity returns different from those of primary buyouts. Using a sample of 2,456 buyout transactions (including 448 secondary buyouts), we find no evidence that secondary buyouts generate lower equity returns or offer fundamentally lower operational value creation potential. However, we can show that secondary buyouts obtain 28–30% more leverage than primary buyouts, even after controlling for debt market conditions. Furthermore, we find evidence that secondary buyouts are 6–9% more expensive than other buyouts.