Secondary buyouts

A secondary buyout (SBO) is a private equity-backed buyout of a business that has previously been the subject of a private equity-backed buyout (such as a management buyout (MBO)). SBOs are one method open to private equity investors looking to exit an investment (with other exit options being taking their investment public through an IPO, or selling the business to another business active in the same industry).

The new private equity investor will usually choose an investment that suits the weighting of its portfolio (eg in particular sectors) and its funding cycles and will be motivated by further growth potential in the business and the opportunity for a relatively low-risk investment, especially where the existing management team stay on.

The acquisition is usually structured as a share purchase and the company being acquired (target) will usually be the company that was the acquisition vehicle for the previous buyout, or (perhaps more likely) the top company of the acquisition group for the previous buyout—ie ‘old’ Newco 1 will be the target in the SBO.

As for an MBO, it is common in an SBO for two or ...