Secondary buyouts

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A secondary buyout (SBO) is where a private equity firm buys a business that has previously been subject to a buyout. The new private equity firm will usually choose an investment that suits the weighting of its portfolio (eg in particular sectors) and its funding cycles. It will be motivated by further growth potential for the business and the opportunity for a relatively low-risk investment, especially where the existing management team stay on in the business. This is because the business is already established and the managers running it know the business and the market that it operates in very well.

The acquisition is usually structured as a share purchase and the target company (Target) will usually be the acquisition vehicle (or top company of the acquisition group) used in the primary buyout, ie old Newco 1 will become Target in the SBO.

It is common for two or more grouped companies to be incorporated to form an acquisition group, with each of the companies having a different function within the group. One company will be the group parent company post-acquisition (Newco 1) and another

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